Market Watch

Dec. 22, 2011, 12:26 a.m. EST

A year of aggressive antitrust oversight

Justice Dept. steps up challenges of blockbuster deals

By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) — The Obama administration’s defeat of AT&T Corp.’s $39 billion acquisition of T-Mobile USA caps what has been the administration’s most determined year yet in beating back Corporate America’s blockbuster deal-making.

And no letup in that oversight is expected any time soon, antitrust experts say.

“It is clear that the government is prepared to use litigation and pressure on transactions that it really doesn’t want to see happen and it has been more aggressive this year than in previous years,” said Steve Axinn, partner with the New York law firm of Axinn Veltrop & Harkrider LLP. “They will be just as aggressive and I believe they may be more aggressive in 2012.”

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More deals that continue to be reviewed in 2012 may need some concessions to clear Washington’s hurdles. The Federal Trade Commission is reviewing pharmacy-benefits manager ExpressScripts Inc.s’ /quotes/zigman/71727/quotes/nls/esrx ESRX +2.00%   proposed $29 billion merger with Medco Health Solutions Inc. /quotes/zigman/306182/quotes/nls/mhs MHS +1.51% since the two are competitors in some markets. 

Some proposed deals may be so problematic that they would run into trouble regardless of the political ideology of the regulators reviewing the transaction. The ExpressScripts-Medco merger review in particular, says Axinn, would raise red flags in any administration.

“This was a year in which it is very hard to say that there is a clear trend or that it is driven by ideology,” Axinn said. “I expect the government will have a strong reaction there [ExpressScripts-Medco].”

In the fiscal year that ended Sept. 30, four mergers were initially challenged by the Justice Department without being allowed to proceed, up from one the previous year, two in 2009 and none in 2008, under the administration of George W. Bush, according to Justice Department data.

Of the four mergers that were held back in 2011, two moved forward after eventually making concessions to pass regulatory muster; one deal in 2011 was blocked by a court and the fourth — the ill-fated T-Mobile proposal — was withdrawn by the two companies.

The past year has also seen an increase in overall challenges that included settlements at the Justice Department. In fiscal year 2010, ending Sept. 30, there were 19 such barriers raised, some of which later were approved after negotiations. In fiscal 2011 there were 20.

The agency subjected 72 proposed mergers to formal scrutiny in 2011, up from 55 in 2010. Of those, the agency asked for more information from the merging parties in 31 cases in 2011 and 22 cases in 2010.

“We’ve seen overall a willingness to litigate in 2011 on the part of the Department of Justice and Federal Trade Commission,” said Mark Botti, chief of the antitrust group at Akin Gump Strauss Hauer & Feld, and also a former federal antitrust lawyer under Bush and President Bill Clinton.

The biggest rejection of the year was the Justice Department suit to block the AT&T /quotes/zigman/1503762/quotes/nls/att ATT 0.00% pact with Deutsche Telekom AG’s /quotes/zigman/252274 DE:DTE +0.86% . The Federal Communications Commission contributed to the collapse after raising its own concerns.

But the Justice Department officials blocked other questionable deals in 2011. In May they sued to prevent the merger of H&R Block Inc. /quotes/zigman/219890/quotes/nls/hrb HRB +2.37%  and TaxAct, a company that sells tax-preparation software and in October a federal judge blocked the deal.

Axinn, who served as the antitrust division’s lead counsel in its challenge to the proposed merger of MCI-WorldCom and Sprint, said the Obama administration’s heightened antitrust forcefulness can be traced back to President Barack Obama making merger regulatory reviews an issue on the campaign trail in 2008.

Another major step, Axinn added, was the Justice Department deciding in spring 2010 to revise guidelines for merger reviews and enforcement actions. The agency’s new guidelines were “more aggressive” and gave the administration more flexibility to challenge deals, he said.