Dealmakers are angry that a growing number of mergers are being blocked. But if a country wants to have an enterprise culture, it must have a vigorous competition policy.
The world's dealmakers and businessmen are upset. It seems that anti-trust authorities are picking on them, breaking up deals that would enrich executives, investment bankers and perhaps even shareholders and consumers.
It is no secret that British Airways' Bob Ayling is annoyed with Karel van Miert, the European competition commissioner, for delaying approval of BA's proposed tie-up with American Airlines. And executives at Boeing, the aerospace company, are still miffed with Van Miert for threatening to disallow their acquisition of McDonnell Douglas unless they restructure the deal to his liking.
Meanwhile, in America, the Justice Department shot down Microsoft's proposed acquisition of Intuit, the maker of Quicken, an accounting and financial software package, and is conducting a full-scale investigation of the company's business practices.
Not to be outdone, the co-keeper of the anti-trust flame, the Federal Trade Commission, challenged the merger of Staples and Office Depot, the two leading office-supplies chains, and earlier this month it blocked McKesson's $1.72 billion purchase of Amerisource Health and Cardinal Health's $2.41 billion takeover of Bergen Brunswick in the interests of preserving competition in drug wholesaling.
But all of this anti-trust action has not prevented takeover activity reaching record levels. Last year the value of American deals rose 37% to $860 billion, according to Securities Data Company. Worldwide, the total came to $1,500 billion, up from $1,100 billion in 1996. All of this activity brings smiles to the faces of the world's investment bankers. In London alone, according to Acquisitions Monthly, dealmakers raked in a record Pounds 1.3 billion in fees for advising on some 1,801 deals.
The financial-services industries are leading the consolidation wave, with Morgan Stanley buying Dean Witter, First Union taking over Corestates, and Union Bank of Switzerland merging with Swiss Bank Corporation. Telecoms is not far behind, with WorldCom's snatching of MCI from the grasp of Brit ish Telecommunications for $37 billion just the most notable of many deals. (Page 3 Times Newspapers Limited, March 22, 1998.)
So nobody can accuse the anti-trust authorities of preventing consolidation just for the fun of it. But there is no question that they are looking harder at some deals that come across their desks for approval. Scott Stempel, a leading Washington anti-trust lawyer, says: "A higher percentage of mergers are being investigated, and enforcers are more sceptical of claims about increased efficiencies and lack of harm to competition."
And Bruce Wasserstein, a dealmaker who boasts of having more than 1,000 deals under his belt, writes in his book Big Deal: The Battle for Control of America's Leading Corporations: "Lately, government authorities have shown a renewed interest in challenging proposed transactions, sometimes with dramatic effect."
This "renewed interest" has the anti-trusters' critics out in full force. Mergers, they argue, are necessary if firms are to benefit fully from the economies of scale available only to the largest companies. Globalisation means companies can now trade all over the world. To do so, they need to be big enough to serve customers on a global basis, and to spread their marketing and other costs over a larger volume of sales. Perhaps even more important, bigger firms have an easier time raising capital. "Indeed, this appears to be one of the most persistent advantages of corporate size," according to Professors FM Scherer and David Ross, of Harvard University and Williams College, respectively.
This is all true, but not necessarily decisive to those entrusted with enforcing competition policy in Washington, Brussels, London and elsewhere. For their job is to stop mergers that may sub stantially lessen competition. Such harm to competition could come if a merger reduces the number of players in a market sufficiently to make it easy for them to co-ordinate their pricing and other policies or, worse still, gives the merged company sufficient power to raise prices on its own.
The importance of this policy is not often understood. To businessmen who see a carefully crafted deal go down the drain, the anti-trust authorities are bumbling bureaucrats who do not understand how business is done. To dealmakers who have worked hard to bring the merging partners together, the Van Mierts and Joel Kleins of the world--Klein is the US Justice Department's chief anti-trust enforcer--seem determined to take the cake out of their families' mouths.
They are wrong, or at least short-sighted. The American courts have called the anti-trust laws "the Magna Carta of free enterprise"--and with reason. These laws assure businessmen of the opportunity to compete fairly for all the business they can get, and to keep the rewards of their success. And they guarantee consumers that there will always be enough firms vying for their business so that the prices of goods and services will be reasonable.
Most important, competition laws set a tone--one of entrepreneurship, of an assurance that a newcomer can challenge a big incumbent and, if his price and product are right, wrest market share from him. That is why it is important that Microsoft not be allowed to serve notice that if anyone develops a dandy piece of software he will find computer manufacturers, which must use Microsoft's operating system, barred from buying it, and that BA be told that so long as it has a virtual monopoly of slots at Heathrow it will not be allowed to extend that power by quasi-merging with a big competitor on the transatlantic route.
Irwin M. Stelzer is a scholar at AEI.