International Implications of the 1982 Merger Guidelines

NOTES INTERNATIONAL IMPLICATIONS OF THE 1982 MERGER GUIDELINES I. INTRODUCTION On June 14, 1982 the United States Department of Justice (Department) issued a new set of guidelines' designed to outline the enforcement policy of the Department concerning acquisitions and mergers (hereinafter referred to collectively as mergers)2 under section 7 of the Clayton Act 3 or section 1 of the Sherman Act.4 The 1982 Guidelines replaces prior guidelines issued in 19685 and is designed to reflect changes in "economic thinking and judicial attitudes" that have rendered the 1968 Guidelines obsolete in important areas, 6 including relevant market definition.7 While the primary impact of the new guidelines will be felt domestically, their international effect is likely to be substantial, given the historically aggressive extraterritorial application of the federal antitrust laws,8 the annually large number of mergers in' UNITED STATES DEPARTMENT OF JUSTICE MERGER GUIDELINES (1982), reprintedin TRADE REG. REP. (CCH) No. 546, at 9-54 (June 16, 1982) [hereinafter cited as 1982 GUIDELINES]. 2 Id. at 11. 3 15 U.S.C.A. § 18 (1973). Section 7 of the Clayton Act of 1914 was designed to deal with problems of economic concentration which the nation's first antitrust law, the Sherman Act of 1890, had failed to combat effectively. Mergers subject to section 7 are prohibited if their effect "may be substantially to lessen competition, or to tend to create a monopoly." Id. - 15 U.S.C.A. § 1 (1973). The Sherman Antitrust Act was enacted in the wake of widespread public concern over economic abuses perpetrated by trusts and other business combinations in the late 19th century. Mergers subject to section 1 of the Sherman Act are prohibited if they constitute a "contract, combination .... or conspiracy in restraint of trade." Id. a UNITED STATES DEPARTMENT OF JUSTICE MERGER GUIDELINES (1968), reprinted in 2 TRADE REG. REP. (CCH) 74510, at 6881-21 to 6889 (Aug. 9, 1982) [hereinafter cited as 1968 GUIDELINES]. I William French Smith, U.S. Attorney General, Introduction to Merger Guidelines, June 14, 1982, reprinted in TRADE REG. REP. (CCH) No. 546, at 5, 6 (June 16, 1982). French views the 1982 Guidelines as "an evolutionary change- not a revolutionary change." Id. See Special Analysis, 1982 Department of Justice Merger Guidelines, ANTITRUST REP. (MB) 12, 14 (July 1982) [hereinafter cited as Special Analysis]. 6 This policy of the United States has been much criticized on an international basis. See, e.g., British Minister Criticizes Exercise of ExtraterritorialJurisdiction by U.S., 43 ANTITRUST & TRADE REG. REP. (BNA) No. 1088, at 861-62 (Nov. 4, 1982). For a discussion of 797 798 GA. J. INT'L & CoMP. L. [Vol. 13:797 volving United States and foreign firms," and the expressed intention of the current administration to have international competition play a more prominent role in the analysis of mergers.10 Significantly, one of the first Department challenges under the 1982 Guidelines involved the acquisition of a British firm by a United States corporation," which reflects the scrutiny to which both United States and foreign viewpoints on this topic, see generally PERSPECTIVEs ON THE EXTRATERRITORIAL APPLICATION OF U.S. ANTITRUST AND OTHER LAWS (J. Griffin ed. 1979). See also Mirabito & Friedler, The Commission on the International Application of the U.S. Antitrust Laws: Pulling in the Reins?, 6 SUFFOLK TRANSNAT'L L.J. 1, 3-6 (1982) (analysis of proposed legislation). 9 MERGER AND ACQUISITION ACTIVITY 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1981 1981 1981 1981 U.S. acquiring U.S. 444 472 506 542 Non-U.S. acquiring U.S. 57 74 65 70 U.S. acquiring Non-U.S. 20 17 21 25 1st Quarter 1982 2nd Quarter 1982 3rd Quarter 1982 4th Quarter 1982 U.S. acquiring U.S. 526 493 439 502 Non-U.S. acquiring U.S. 65 51 67 40 U.S. acquiring Non-U.S. 43 35 33 27 (Includes only transactions valued at $1 million or more in cash, market value of capital stock exchanged or debt securities.) Adapted from For the Record, 17 MERGERS AND AcQuISITIONs 56 (Spring 1982); For the Record, 17 MERGERS AND ACQUISITIONS 60 (Fall 1982); For the Record, 17 MERGERS AND ACQUISITIONS 72 (Winter 1983); 18 MERGERS AND ACQUISITIONS 65 (Spring 1983). o See, e.g., Baxter Seeks Greater Considerationof InternationalCompetition in Merger Cases, [Jul.-Dec.] ANTITRUST & TRADE REG. REP. (BNA) No. 1030, at A-17 to A-19 (Sept. 3, 1981) (head of Department's Antitrust Division emphasizing role of international competition in formulating new guidelines); Interview with William F. Baxter, 51 ANTITRUST L.J. 23, 27 (1982) (explaining role of international competition in market definition). " United States v. American Brands, Inc., No. 82 Civ. 5020 (S.D.N.Y. filed Aug. 2, 1982). See Justice Attacks American Brands' Acquisition of British Company, 43 ANTITRUST & TRADE REG. REP. (BNA) No. 1076, at 291 (Aug. 5, 1982). American Brands, Inc. is a holding company involved in the manufacture and sale of home and office staplers through its wholly-owned subsidiaries, Swingline Inc. and Ace Fastener Co. The Department's complaint alleged that American Brands' acquisition of Ofrex Group, Ltd., a British office supply manufacturer and distributor that makes sales in the United States, violated section 7 of the Clayton Act because the acquisition may tend to substantially lessen competition or create a monopoly in the production and sale of home and office staplers. In 1980 American Brands, the dominant producer of home and office staplers in the United States market, accounted for approximately 67% of the market while Ofrex, the fourth largest seller, accounted for 6% of the market. In challenging this merger, the Department specifically used the 1982 Guidelines in defining the relevant market and analyzing market concentration under the Herfindahl-Hirschman Index. For discussion of the Herfindahl-Hirschman Index, see infra 19831 1982 MERGER GUIDELINES 799 international mergers will be subject under the new guidelines. This Note will trace briefly the development of the 1982 Guidelines and analyze their anticipated impact on international corporate operations. Emphasis will be placed on evaluating the effect of the 1982 Guidelines on the crucial issues of geographic and product market definition and of the degree to which these guidelines achieve the Department's goal of reducing uncertainty in the field of international mergers." ' II. HISTORY The first serious efforts to set forth comprehensive merger guidelines began in 1955."' Severe criticism of the impracticality of this early attempt to predict the effect of mergers through extensive economic analysis14 was followed by judicial adoption of market share analysis as the primary consideration in merger analysis."5 Emphasis on market structure created a need for additional guidance for lawyers and businessmen contemplating mergers." Responding to this need, the Dep (...truncated)