Ditch the Junk Science, Antitrust Cops Warn Merging Firmsby
Enforcement officials say they won’t be snowed by econometrics
Merger scrutiny can’t ‘let up’ amid deal wave, DOJ No. 3 says
The Justice Department is sending a warning signal to health insurers, chemical companies and others seeking antitrust approval for big deals: Leave the dubious charts at home.
Antitrust lawyers for companies seeking approval for big mergers have for years bolstered their case by providing extensive economic analyses, often market by market, to show that the tie-ups wouldn’t stifle competition. Now, Justice Department officials are saying they’re not going to be swayed in their analysis by impenetrable economic models.
While the Justice Department isn’t naming names or pointing any fingers for presenting unseemly data, the comments are the most recent indication that it’s taking a tougher stance against megadeals. The latest salvo came Thursday, when the department’s No. 3 official, Bill Baer, said antitrust enforcers can’t let up on their commitment to blocking mergers that the department deems anticompetitive in the waning days of the Obama administration.
“Our assessments of competitive effects do not simply rely on quantitative evidence provided by expert testimony,” Baer, who until recently ran the department’s antitrust unit, said in a speech in Washington. Company documents and testimony from rivals and consumers may provide better evidence, he said.
“Junk science” is what another official, David Gelfand, called some of the economic analysis presented to the department to justify deals. Charts and pictures are great -- but not data that’s mixed and matched to make a case, Gelfand said in a June 6 speech in Washington, shortly before leaving his job as a deputy assistant attorney general in charge of litigation to return to private practice.
The work of economic consultants working for companies is often, but not always, informative to antitrust officials who are trying to understand the competitive effects of a merger, said Martin Gaynor, an economist at Carnegie Mellon University and a former chief economist at the Federal Trade Commission.
Sometimes, it seems that economic consultants are trying to "sow confusion" and even appears that some produce misleading work, Gaynor said.
"There are some defense experts who appear to try to generate a large amount of material, sort of of throwing spaghetti at the wall or throwing sand in the works to cast doubt or confusion," he said.
U.S. antitrust enforcers who have recently opposed deals to unite office suppliers, oil-services firms and cable companies, are now vetting mergers that could remake agriculture and health care.
"The United States is in the midst of a merger wave, with the number, size and complexity of mergers among the highest they have been in the last decade," said Baer, who is now the Justice Department’s acting associate attorney general. "Especially in this environment, we cannot afford to let up our efforts."
Planned mergers among four of the five biggest U.S. health insurers and agricultural chemical and seed companies would lead to "substantial consolidation" and require close scrutiny, Baer said.
The antitrust division is now reviewing Anthem Inc.’s planned acquisition of Cigna Corp. and Aetna Inc.’s deal for Humana Inc., two mergers that would reduce the number of major U.S. health insurers to three from five. Baer has previously called them a "game changer." The division is also reviewing Dow Chemical Co.’s proposed tie-up with DuPont Co., which comes at the same time as China National Chemical Corp.’s bid for Syngenta AG and a possible Bayer AG takeover of Monsanto Co.
Gelfand, in his remarks earlier this month, criticized some of the economic evidence presented to the division during his tenure. He urged economists, who are often called as expert witnesses in merger trials, to dispense with jargon and present clear arguments that are supported by data.
“You need to be able to explain in simple terms the nature of the work you have done, the source of the information that feeds into that work, and why it demonstrates the point you are trying to make,” Gelfand said in the speech. “It is not persuasive to rattle off technical jargon and expect us to take on faith that a conclusion is valid simply because you obtained some value for a statistic.”
Gelfand cited one study that purported to show that a previous merger in the industry had no effect on prices although the underlying data showed prices for the products at issue did rise, a result that was omitted from the report, he said. The price data “should have been disclosed and presented with candor,” Gelfand said. That transaction was ultimately abandoned.