The Antitrust Cops Are Coming
Media giant Time Warner Inc.'s proposal to acquire Turner Broadcasting System Inc. faces possible rejection from a skeptical Federal Trade Commission. The Justice Dept. investigates Moody's Investors Service for alleged antitrust violations in its bond-rating practices. Rite-Aid Corp.'s plan to merge with Revco D.S. Inc. crumbles under assault from federal trustbusters, as does Microsoft Corp.'s deal to take over personal-finance software company Intuit.
With these and other actions, Corporate America is discovering a new reality: Although many of the capital's regulatory agencies have sheathed their fangs under Bill Clinton, the Administration's antitrust watchdogs are on the prowl--and biting. And today's targets come mostly out of the rapidly emerging sectors of the 21st century: computers, telecommunications, financial services, and health care. "To have impact, we have to bring cases in industries central to the future development of our economy," says Anne K. Bingaman, Justice's top trustbuster.
The thrust isn't just future-oriented, though. The government also is reviving traditional antitrust policy that had languished for a decade under Presidents Reagan and Bush. Several of the most recent cases deal with the cozy relationships between suppliers and retailers that might harm consumers. For example, Justice has launched a probe of snack-food giant Frito-Lay Inc. on the grounds that it might have pressured retailers to keep rivals' products off of store shelves. And the FTC is after Toys `R' Us Inc., charging in a May 22 complaint that the company cut exclusive deals with toy manufacturers to freeze out some of its discount competitors.
NEW FOCUS. The Clintonites' return to antitrust activism comes with a special focus on evolving global industries deemed to be anchors of the new economy. The thinking behind this new focus is fairly straightforward: As companies engage in a frenzied round of Info Age dealmaking, the Feds want to ensure that the resulting corporate powerhouses don't quash newcomers that might bear the seeds of vital technological breakthroughs.
The zeal of Justice's Bingaman and FTC Chairman Robert Pitofsky has unsettled business, because CEOs are no longer sure where the new boundaries lie. "They seem to want to change the [interpretation of the] law," says Toys `R' Us Chairman Michael Goldstein. "We're confused about what they want us to do." Martin Grass, chairman and CEO of Rite Aid, is blunter: "I get the sense that they take joy in killing deals."
Whether the trustbusters take joy in their successes or not, regulators are determined to help shape developing industries in a way that's fair and promotes competition. Take high tech. Clintonites are concerned that companies that possess standard-setting technologies, such as Microsoft with its dominant Windows operating system, don't use their advantage to control next-generation technologies. That's why, in April, 1995, Justice blocked Microsoft's $2 billion acquisition of Intuit. The department contended that Microsoft was really aiming to control the burgeoning online personal finance market. Antitrust experts believe that in the future, Justice will closely monitor Microsoft's forays into the Internet, looking for any attempts to impose its Internet browser on Windows users at the expense of rival Internet products.
The Feds are also focusing on anticompetitive practices in patent licensing. Last November, the FTC brought a case against Dell Computer Corp. for helping set an industry standard for the technology that transfers instructions between a computer's central processor and peripheral components--then making rivals pay a royalty for the technology. Dell has since agreed to drop the patent claims and halt royalty collections.
A SHARP EYE. Another target for trustbusters: telecommunications, where recent congressional reforms have created a rapidly changing marketplace. The Baby Bells are rushing to merge. Long-distance companies are eyeing local phone markets. And Justice is on the lookout for any combination that smacks of the old-style AT&T monopoly. Merging goliaths Bell Atlantic Corp. and Nynex Corp., for instance, are under intense government scrutiny because the adjacent regions they control account for $30 billion of the long-distance business.
Over at the FTC, officials are skeptical of the Time Warner and Turner merger, fearing the resulting combo would dominate both cable programming and distribution. The two companies own some of the nation's most popular cable networks, such as HBO and CNN. In addition, Time Warner and Turner investor Tele-Communications Inc. own extensive cable-television systems. FTC trustbusters fear that a merger would thwart the entry of newcomers in both segments of the business.
New alliances in the health-care field raise different concerns. Health-care providers, insurers, and drug companies need to be large enough to cut costs. But antitrust regulators want to prevent them from getting so big that they can resist attempts by customers to negotiate lower prices. That's why, on Apr. 17, the FTC blocked the $1.8 billion merger of Rite Aid and Revco. Agency attorneys thought that the huge drugstore combination could thwart attempts by employee insurance plans to bargain for cut-rate prescription drugs. Now, the Feds are looking at health insurers that wangle exclusive price concessions from optometrists, dentists, and other care providers.
MORE OF THE SAME? Of course, Administration antitrusters aren't always gung-ho about bringing cases against big companies. When it comes to linkups that enhance the U.S.'s ability to compete globally, the Clintonites can be rather mellow. In June, the FTC will issue a report detailing ways that U.S. exporters could get more lenient treatment from trustbusters at home. "Otherwise, we pay a price for our ability to compete in the global market," says the FTC's Pitofsky.
For all their efforts to harness the future, antitrust watchdogs insist that they have instituted only incremental policy changes. "There hasn't been any real break from the past," contends Bingaman. But companies that are increasingly enmeshed in the Feds' antitrust net see it differently. Bill Clinton, the candidate who once urged voters to "make change your friend," can be downright unfriendly when it comes to policing the new economy's industries.