Last week’s court decision overturning the breakup of Microsoft Corp. may well signal the end of the hawkish antitrust enforcement that prevailed throughout the 1990s, experts say.
Under departed antitrust chief Joel Klein, the Justice Department imposed an almost unprecedented level of scrutiny and pressure on U.S. companies–blocking a proposed merger between Sprint Corp. and WorldCom Inc., for instance, and subjecting even many small acquisition proposals to vigorous review.
Observers have long expected the Bush administration to adopt a kinder, gentler approach to antitrust enforcement. An array of pending mergers–plus the looming decision about whether to settle the Microsoft case on terms favorable to the software giant–will soon yield vital clues about the administration’s new direction, they say.
“Most practitioners anticipate the Bush administration will be less aggressive than the Clinton administration, which was very aggressive,” said Milton Marquis, a partner in the Washington office of the Jenner & Block law firm. “But how less aggressive is open to question.”
The legacy of Joel Klein’s antitrust division–and the impact of the true-believer enforcers Klein hired–is still being felt in the handling of some pending deals.
In the food industry, PepsiCo Inc.’s takeover of Quaker Oats Co. and the Dean Foods Co. merger with Suiza Foods Corp. continue to draw antitrust scrutiny. UAL Corp.’s acquisition of US Airways Group Inc., too, has sat on the regulatory tarmac for more than a year.
And as of Friday, General Electric Co. and Honeywell International Inc. were moving further apart after running into Europe’s version of Klein.
So when will the anticipated relaxing of government oversight of monopolies and megadeals by a business-friendly Uncle Sam kick in? Possibly, experts say, as soon as the government begins to seriously talk settlement with Microsoft.
“It’s a nice way to get a sense of where they’re going,” said Randy Picker, a University of Chicago law professor. “Microsoft wants to settle this thing, and so does the Bush administration.”
Without doubt, Picker said, the Bush administration will give more weight to merger benefits than did its Democratic predecessors, so pending deals like PepsiCo-Quaker and Dean-Suiza will probably get a break in that regard. But no one can tell yet if President Bush wants an antitrust stance that more resembles his father’s or that of President Ronald Reagan.
Bush’s antitrust chief
Charles James, the antitrust lawyer who heads the Bush administration’s antitrust office, was confirmed for that job by the Senate only last week. He also headed that division for several months at the end of the administration of Bush’s father.
Although James is certainly more conservative than his predecessors in the Clinton administration, he was a more aggressive antitrust enforcer for the first Bush presidency than was true of the office under Reagan, said Jenner & Block’s Marquis.
When Reagan succeeded Jimmy Carter in 1980, Craig Blakley was a young lawyer defending a company on antitrust charges lodged during Carter’s reign.
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“I was hoping to get some trial experience, but it never happened,” said Blakley, who practices in Washington. “Shortly after Reagan took office, they settled the case and my client was off the hook.”
The antitrust shift from Carter to Reagan was much more vivid than the shift from Clinton to Bush, he said, but it is nevertheless a real one.
There will be no end of opportunity for businesses to find out just how much leeway this administration will give them, as Corporate America is certain to keep making huge deals to consolidate its ability to dominate domestic and foreign markets.
A permissive view of megamergers by Washington can only encourage what is already a strong enthusiasm for size and scale on Wall Street in a struggling economy.
“There’s oodles of companies with valuations in the cellar, so you can bet the stronger ones will snap up the weaklings at bargain-basement prices,” said Susan Kalla, a telecommunications analyst with Friedman, Billings, Ramsey & Co.
For instance, ailing Lucent Technologies Inc. came close recently to selling itself to Alcatel SA, the giant French telecom equipment-maker. The deal was called off, but Lucent may seek another suitor by autumn.
Today’s hands-off philosophy
A more permissive stance on megamergers is part of Bush’s general philosophy of leaving businesses alone to do whatever they like with a minimum of interference, said Christopher Leslie, a law professor at the Kent College of Law.
“It’s not so much animus toward antitrust as it is a feeling that government shouldn’t interfere with businesspeople,” Leslie said. “That really ignores the fact that antitrust laws are meant to create a free market. When you have a monopoly running things, there is no free market, so it is illogical to say just leave things to the market.”
Although Microsoft’s dominance of the software industry has earned it many enemies, many businesspeople welcome Bush’s hands-off philosophy, even if may enable some monopolies to do as they wish.
“If you’re relying on antitrust regulators to help you out, you don’t even get into the game,” said Alan Warms, chief executive of Participate.com, a Chicago-based software and services firm that manages online communities, including Microsoft’s MSN network.
Some businesspeople criticize vigorous antitrust enforcement as actually harming an industry. Microsoft’s dominance, they say, is a unifying force for the computer industry that benefits competitors and customers alike.
During the current downturn in the economy, Microsoft’s deep pockets and its strong desire to dominate the Internet help keep that sector moving, said Michael Ferro, chief executive of Chicago’s Click Commerce Inc., a business partner of Microsoft.
“Microsoft has one thing on their minds right now, which is how to gain control of the Internet space,” he said. “That’s going to make companies like IBM, Oracle and Sun sit up and take notice. Nobody can afford to let their investment slack off.”
Ellen Carnahan, a managing director at William Blair Capital Partners, Chicago, is not a fan of Microsoft. However, “you need very large players to stand up and try to set standards,” she said. “That’s part of doing business in the tech world.”