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Stringent U.S. antitrust regime adds to M&A hurdles
August 12, 2009 / 8:56 PM / 8 years ago

Stringent U.S. antitrust regime adds to M&A hurdles

NEW YORK (Reuters) - Tougher antitrust scrutiny from Washington is slowing deal making even as some early signs of improvement have started to appear in the mergers and acquisitions market.

Bankers and lawyers said antitrust officials appointed by President Obama have broadened and lengthened investigations and they expect more vigorous enforcement in years to come.

”I think the antitrust paradigm is very different under Obama than it was under Bush,“ said Lee LeBrun, co-head of Americas M&A at UBS. ”You find deal lawyers and inside counsel spending a lot more time analyzing the antitrust response to potential deals.

“I think deals are taking longer to come together as a result of antitrust and being structured in a way to mitigate the increased antitrust scrutiny.”

Christine Varney, the U.S. Justice Department’s top antitrust official, has repeatedly pledged to take a more aggressive approach on the combination of companies with large market positions.

The antitrust division is looking at a proposed merger of Ticketmaster Entertainment Inc TKTM.O and Live Nation Inc (LYV.N), the world’s largest concert promoting company. It also opposed antitrust immunity for Continental Airlines Inc’s (CAL.N) agreement to join UAL Corp’s UAUA.O United Airlines and others in the Star alliance.

This is a big change from the Bush administration, when antitrust regulators were criticized for approving deals such as the merger of appliance rivals Whirlpool Corp (WHR.N) and Maytag in 2006 and the 2008 merger of XM and Sirius (SIRI.O), the only two U.S. satellite radio companies.

Companies have also seen increased scrutiny from the Federal Trade Commission.

Lawyers expect health care, high technology, oil and gas and financial services deals to receive especially close looks from regulators.

CREATIVE STRUCTURES

Joel Greenberg, co-chair of law firm Kaye Scholer’s corporate and finance department, said he was aware of several non-public situations “that have been tied up at the justice department for months, where a year ago they probably wouldn’t have been.”

Greenberg said the change in antitrust regime made buyers and sellers more cautious in any deal that might have antitrust ramifications. He added it will also lead to increased transaction costs, as antitrust and M&A lawyers shape deals to prepare for obstacles in Washington.

He said companies would likely need to structure deals to prepare for longer waits for antitrust approval, including writing more specific clauses to account for possible material changes.

George Casey, co-head of mergers and acquisitions at law firm Shearman & Stearling, said sellers should try to build in strong contractual provisions to require a buyer to complete a deal even if there are antitrust issues.

“The seller really wants to make sure it gets as much deal certainty as possible in light of the antitrust concerns. If the buyer is not prepared to offer that type of certainty, that deal may not get structured, because at the end of the day, the issue is who takes that risk?”

Lawyers are keeping a close watch on the outcome of the antitrust reviews of the Ticketmaster/LiveNation deal and Oracle Corp’s ORCL.O plan to buy Sun Microsystems Inc JAVA.O. They are also waiting to see what kinds of demands the FTC makes in drugmaker Pfizer Inc’s (PFE.N) mammoth acquisition of Wyeth WYE.N, as well as Merck & Co Inc’s (MRK.N) planned purchase of Schering Plough Corp SGP.N, according to Beau Buffier, a partner in Shearman & Stearling’s antitrust division.

Bankers have pointed to improved stock markets, as well as enthusiasm from clients as signs of optimism for deal volumes for the rest of 2009.

Still, Buffier said the cloudier regulatory environment was another drag on the M&A market still reeling from the recent economic crisis.

“If you have the economy in the shape that it is with companies in financial distress and with significant uncertainty around the ability to obtain financing, and then you layer on top of that some additional regulatory uncertainty, that can have a negative impact on the enthusiasm for some transactions,” Buffier added.

(For more M&A news and our DealZone blog, go to www.reuters.com/deals)

Reporting by Michael Erman; editing by Andre Grenon

Our Standards:The Thomson Reuters Trust Principles.
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