Mergers and Acquisitions
| Author | Ronan P. Harty |
| Pages | 355-463 |
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CHAPTER 3
MERGERS AND ACQUISITIONS
A. Introduction
1. Scope of Chapter
This chapter addresses two distinct but related subjects: (1) mergers and
acquisitions, which include a wide variety of transfers or consolidations of rights of
ownership or control, and (2) interlocking directorates.
The competitive effects of mergers and acquisitions are governed principally by
Section 7 of the Clayton Act,1 which prohibits transactions that may substantially
lessen competition or tend to create a monopoly.2 The Federal Trade Commission
(FTC) and the Department of Justice Antitrust Division (DOJ) are the primary federal
government enforcers of Section 7.3 FTC and DOJ enforcement procedures are further
discussed in Chapter 8. In addition to DOJ and FTC enforcement, Section 7 may be
enforced by private parties (pursuant to Section 4 or 16 of the Clayton Act),4 and by
state attorneys general on behalf of their states.5
Mergers and acquisitions also may be challenged as unreasonable restraints of trade
under Section 1 of the Sherman Act6 or as monopolization or attempted
1. 15 U.S.C. § 18. The legal standards applicable to the analysis of mergers and acquisitions under § 7
are reviewed extensively in ABA SECTION OF ANTITRUST LAW, MERGERS AND ACQUISITIONS:
UNDERSTANDING THE ANTITRUST ISSUES (4th ed. 2015). The process by which the federal agencies
review proposed transactions is discussed in detail in ABA SECTION OF ANTITRUST LAW, THE
MERGER REVIEW PROCESS: A STEP-BY-STEP GUIDE TO U.S. AND FOREIGN MERGER REVIEW (4th
ed. 2012).
2. 15 U.S.C. § 18.
3. Other federal agencies, including the Surface Transportation Board, Federal Communications
Commission, Department of Transportation, Federal Energy Regulatory Commission, and Federal
Reserve Board, are also responsible for merger review in certain regulated industries. See 15 U.S.C.
§ 21(a) and the discussion of regulated industries in Chapter 14. In addition, under provisions of the
Omnibus Trade and Competitiveness Act of 1988 (known as the Exon-Florio Amendment), certain
acquisitions by foreign entities may be reviewed by the Committee on Foreign Investment in the
United States, a federal interagency group chaired by the Department of the Treasury. See 50 U.S.C.
App. § 2170; 31 C.F.R. § 800. The Exon-Florio Amendment confers power on the president to block
or undo acquisitions of domestic firms by foreign buyers on national security grounds.
4. Section 4 of the Clayton Act authorizes any “person . . . injured in his business or property by reason
of anything forbidden in the antitrust laws” to recover treble damages. 15 U.S.C. §15(a). Injunctive
relief is provided under § 16 for any person “threatened [with] loss or damage by a violation of the
antitrust laws.” Id. § 26. For a discussion of private enforcement of § 7, see part F of this chapter.
5. For a discussion of enforcement by state attorneys general, see part G of this chapter. See also ABA
SECTION OF ANTITRUST LAW, STATE ANTITRUST PRACTICE AND STATUTES (5th ed. 2014).
6. 15 U.S.C. § 1.
356 ANTITRUST LAW DEVELOPMENTS (NINTH)
monopolization under Section 2 of the Sherman Act.7 Acquisition and other property
transfer agreements among competitors also may be used as part of a broader scheme
to restrain trade and thereby be found to violate the Sherman Act.8 Courts are split,
however, as to whether the required showing under the Sherman Act is higher than
that under Section 7. Early case law contains statements that Section 7 was intended
to reach incipient anticompetitive effects not reached by Section 1 of the Sherman
Act.9 It is unclear whether the distinction persists.10
Interlocking directorates are governed by Section 8 of the Clayton Act, which
prohibits a person from serving as either a director or board-elected or board-appointed
officer of two competing nonbanking corporations whose size and amount of
competing revenues exceed certain statutory thresholds.11 This chapter addresses the
antitrust principles applicable to mergers and acquisitions and to interlocking
directorates in turn.
2. Overview: Mergers
Parties merge for a number of reasons, such as to increase or enhance shareholder
value, enter new product lines or geographic markets, spread risk, realize operational
synergies, or achieve economies of scale. While the rationale for a merger may be
procompetitive, mergers also can create or enhance market power. Market power is
the ability to restrain output or raise prices above competitive levels for a significant
7. Id. § 2; see, e.g., United States v. First Nat’l Bank & Trust, 376 U.S. 665, 666 n.1 (1964); United
States v. Columbia Steel Co., 334U.S. 495, 529-30 (1948); United States v. Rockford Mem’l Corp.,
898 F.2d 1278, 1281-82 (7th Cir. 1990); Panache Broad. v. Richardson Elecs., 1995 U.S. Dist.
LEXIS 14339 (N.D. Ill. 1995) (§§ 1 and 2). In addition, the Federal Trade Commission (FTC) may
challenge a merger or acquisition as a violation of § 5 of the Federal Trade Commission Act (FTC
Act) which, in relevant part, prohibits “unfair methods of competition,” 15 U.S.C. § 45. A violation
of § 5 may be based on violations of the specific prohibitions of the Clayton or Sherman Acts or on
“trade practices which conflict with the basic policies” of those laws without directly violating them.
See, e.g., FTC v. Brown Shoe Co., 384 U.S. 316, 321 (1966); Times-Picayune Publ’g v. United
States, 345 U.S. 594, 609 (1953).
8. See, e.g., Timken Roller Bearing Co. v. United States, 341 U.S. 593, 597-98 (1951), overruled on
other grounds by Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984).
9. See, e.g., United States v. Penn-Olin Chem. Co., 378 U.S. 158, 170-71 (1964) (“The grand design of
the original § 7 . . . was to arrest incipient threats to competition which the Sherman Act did not
ordinarily reach.”).
10. See, e.g., First Nat’l Bank, 376 U.S. at 671-72 (appearing to apply § 7 standards in a challenge under
§ 1); Rockford Mem’l Corp., 898 F.2d at 1281-83 (noting that judicial interpretation of the two acts
has converged); Community Publishers v. Donrey Corp., 892F. Supp. 1146, 1173 (W.D. Ark. 1995)
(citing Rockford Mem’l Corp., 898 F.2d at 1281-82), aff’d sub nom. Community Publishers v. DR
Partners, 139 F.3d 1180 (8th Cir. 1998); McCaw Personal Commc’ns v. Pac. Telesis Group, 645 F.
Supp. 1166, 1173 (N.D. Cal. 1986) (“[S]tandard . . . under the Sherman Act is similar, if not
identical, to that under the Clayton Act.”); United States v. Central State Bank, 621 F. Supp. 1276,
1294-95 (W.D. Mich. 1985) (declaring that “[t]he emphasis on market concentration in § 7 cases is
860, 867 (W.D.N.Y. 1994) (citing favorably to the Penn-Olin distinction); SCFC ILC, Inc. v. Visa
U.S.A., Inc., 819 F. Supp.956, 991 (D. Utah 1993) (same), aff’d in part & rev’d in part, 36 F.3d 958
(10th Cir. 1994).
11. 15 U.S.C. § 19. Section 8 is discussed in part H of this chapter.
MERGERS AND ACQUISITIONS 357
time,12 thereby reducing consumer welfare.13 Consequently, the principal concern with
mergers under the antitrust laws is the creation or enhancement of market power.14 If
a merger increases concentration in one or more relevant markets, it may create or
enhance market power or allow remaining firms to coordinate their actions.
Over the years, the courts and regulatory agencies have developed and refined
certain criteria for determining the competitive impact of a given transaction. This
process can include identifying the relevant market and market participants, assessing
market concentration resulting from the merger, and determining the likely
competitive effects of the increase in market concentration resulting from the merger.
This chapter examines the criteria and mechanisms used to evaluate the competitive
impact of mergers in the context of enforcing Section 7 of the Clayton Act.
3. Scope of Section 7
Section 7 covers a wide variety of stock, assets, or partnership interest
acquisitions,15 and has been interpreted to apply to both nonprofit and for-profit
entities.16 Section 7 also applies to the formation of certain joint ventures among actual
or potential competitors.17
With respect to asset acquisitions, Section 7 applies not only to those involving
substantially all of a business’s assets and, therefore, resembling mergers, but also
12. See Eastman K odak Co. v. Image Technical Servs., 504 U.S. 451, 464 (1992); Rebel Oil Co. v.
Atlantic Richfield Co., 51 F.3d 1421, 1434 (9th Cir. 1995).
13. See Consolidated Metal Prods. v. American Petroleum Inst., 846 F.2d 284, 293 (5th Cir. 1988); see
also U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL MERGER GUIDELINES (2010)
[hereinafter 2010 MERGER GUIDELINES], available at http://ftc.gov/os/2010/08/100819hmg.pdf.
14. See United States v. Archer-Daniels-Midland Co., 866 F.2d 242, 246 (8th Cir. 1988).
15. When originally enacted in 1914, § 7 covered only acquisitions of stock of one corporation by
another corporation if both corporations were engaged in interstate commerce. Pub. L. No. 212, 38
Stat. 731 (1914). In 1950, § 7 was amended to cover asset acquisitions as well, greatly expanding its
coverage. Pub. L. No. 81-899, 64 Stat. 1225 (1950) (codified as amended at 15 U.S.C. § 18); Brown
Shoe Co. v. United States, 370 U.S. 294, 311-23 (1962) (discussing legislative history of § 7 up to
and including the 1950 amendment). The statute was extended again in 1980 to cover firms engaged
“in any ac tivity affecting commerce” and to apply to acquisitions by or from individuals and
partnerships as well as corporations. Pub. L. No. 96-349, § 6(a), 94 Stat. 1157 (1980) (codified as
amended at 15 U.S.C. § 18). Prior to the 1980 amendment, § 7 did not apply to firms engaged only
in local activities even though those activities may have affected interstate commerce, see United
States v. Am. Bldg. Maint. Indus., 422 U.S. 271, 283 (1975); to acquisitions by or from individuals,
see United States v. Tracinda Inv. Corp., 477 F. Supp. 1093, 1097 (C.D. Cal. 1979); to the formation
of a corporation by two individuals, see Hudson Valley Asbestos Corp. v. Tougher Heating &
Plumbing Co., 510 F.2d 1140, 1145 (2d Cir. 1975), or to acquisitions of partnerships, see American
Bldg. Maint. Indus., 422 U.S. at 279. Particular industries and markets are exempt from § 7 by statute
and, in the case of professional baseball, by court decision. See 15 U.S.C. §§ 18, 21; Federal Baseball
Club v. National League of Prof’l Baseball Clubs, 259 U.S. 200 (1922). These exemptions are
discussed in Chapter 14.
16. See FTC v. Freeman Hosp., 69 F.3d 260, 267 (8th Cir. 1995) (challenging asset acquisition by
nonprofit hospital); FTC v. Univ. Health, 938 F.2d 1206, 1224 (11th Cir. 1991) (rejecting notion that
nonprofit entities would be less likely than profit-maximizing institutions to abuse market power);
United States v. Rockford Mem’l Corp., 898 F.2d 1278, 1280-82 (7th Cir. 1990) (rejecting
government’s proffered argument for § 7 jurisdiction but indicating an alternate basis for
jurisdiction).
17. Joint ventures are discussed in Chapter 4.
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