Dealmakers, Beware: The Ftc Is Showing Its TeethBy
With a GOP Congress hot to slash regs and Bill Clinton eager to renew his New Democrat credentials, Washington regulators are keeping a low profile. Except at the Federal Trade Commission, that is. Under the aggressive new leadership of Chairman Robert Pitofsky, the FTC is stopping some megadeals in their tracks and sending a chill through corporations in the throes of merger mania.
Since Clinton appointee Pitofsky took the helm a year ago, the once sleepy FTC has launched investigations into possible anticompetitive moves in industries ranging from defense to toys, health care to computers. The latest target: media goliaths Time Warner Inc. and Turner Broadcasting System Inc. Agency trustbusters fear the proposed $7.5 billion merger would quash competition in the cable industry. Armed with testimony from 50 merger opponents, the agency is going all-out to block the deal in its present form. "This is World War III for the FTC," says an industry source.
At a time of record merger activity, Pitofsky is determined to put his imprimatur on competition policy--especially since the Justice Dept.'s antitrust division has had a mediocre record of enforcement. "In the sweepstakes for supremacy, the FTC is way out in front now," says George Mason University Law Professor William E. Kovacic.
MIDDLE COURSE. Still, the former Georgetown University Law School dean and Carter-era FTC commissioner is not a knee-jerk, big-is-bad trustbuster. He says he wants to find a middle course between "the aggressive enforcement of the '60s and the low-level enforcement of the '80s." For instance, he supports combinations that make U.S. companies more competitive in the global marketplace. And defense contractors that link up to survive government cutbacks also may get a green light: The FTC O.K.'d Lockheed Martin Corp.'s $9.1 billion acquisition of Loral Corp. in April.
But on Apr. 17, the FTC voted unanimously to block the $1.8 billion merger of pharmacy chains Rite Aid Corp. and Revco D.S. Inc.--even after the two companies had offered to sell off stores. The parties folded their plans a week later. The strong FTC opposition was prompted by fears that the new drugstore chain would resist efforts by employer alliances to bargain for discount prices for their employees.
In another health-care case, Aetna Life & Casualty Co.'s $8.9 billion purchase of U.S. Healthcare Inc., the FTC decided not to interfere. The reason: The health-care business is still fragmented despite recent consolidations, so it would be tough for one company to dictate prices.
The FTC's objection to the Time Warner-Turner combo, industry sources say, is that it would dominate cable programming. Another concern is that giant cable operator Tele-Communications Inc.'s stake in Turner--when teamed up with Time Warner's cable systems--would account for almost half of the U.S. market.
With a formal vote by the FTC commissioners not expected before June, the would-be partners hope to save the deal by offering concessions, including divestitures or changes in internal ownership stakes. That approach worked for Lockheed Martin and Loral: The deal went through after the two contractors agreed to set up fire walls between divisions in overlapping businesses, such as fighter aircraft.
But as Rite Aid and Revco discovered, even concessions may not sway the FTC. With Pitofsky in charge, the agency is putting merger mavens on notice: Don't expect Washington to rubber-stamp your dealathons.