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REQUEST FOR "ADDITIONAL RELEVANT INFORMATION" One of the requirements of H. R. 2143 is that the parties to a covered transaction “shall furnish within 30 days after request therefor, such additional relevant information within their knowledge or control as may be requested within 60 days after delivery of notice of the proposed acquisition as may be required by the commission or board vested with jurisdiction under section 11 of this act or by the Attorney General.”
This requirement affords no opportunity for predetermination of what is "relevant” nor any means for testing the question of relevancy of a demand for information, no matter how excessive or unreasonable, except as a defendant in an action by the Attorney General to collect a penalty of from $5,000 to $50,000.
The term "relevant" is inherently ambiguous and subject to varied interpre tation. Apparently what is relevant is left to the sole determination of the Department of Justice and the commission or board having jurisdiction,
PROVISION FOR WAIVER OF WAITING PERIOD Apparently recognizing the sweeping scope of the notification and waiting period requirements, H. R. 2143 calls for the establishment of "procedures for the waiver * * of all or part of the waiting requirements in appropriate cases * * *
Such an authorization is no assurance that realistic or practicable waiver procedures will be put into effect, or that they will be uniform in principle among the various commissions or boards vested with jurisdiction under section 11 of the Clayton Act. Broad discretion is left to these bodies to determine what is an appropriate case. This gives no enforceable statutory protection against failure of the agencies to promulgate rules. Neither does it assure that transactions which have no conceivable Clayton Act consequences, or which involve serious time emergencies, would be granted waivers.
In any event, delays would seem to be the inevitable consequence of any application to an agency for a waiver.
TRANSACTIONS SUBJECT TO THE JURISDICTION OF VARIOUS BOARDS OR COMMISSIONS
The mandatory requirement that in the case of transactions subject to the jurisdiction of the Civil Aeronautics Board, the Federal Communications Com. mission, or the Maritime Commission, notification would have to be given also to the Department of Justice by such Commission or Board raises various questions.
What is the function or responsibility of the Department of Justice in matters subject to the jurisdiction of these boards or commissions? At the very least it would seem that this requirement could mean unnecessary and harmful delay in the conclusion of complex transactions which have been fully considered by the appropriate board or commission.
EXTENSION OF CLAYTON ACT TO BANK ASSET ACQUISITIONS Particularly serious are the unnecessary and burdensome complications which this bill would create for the American system of commercial banking.
For more than 100 years American banking has been supervised and chartered by the Federal and State Governments. Banking competition has feen fostered and has flourished under this dual system. The banking system of today repre sents a long period of carefully considered development. Proper supervisory agencies and mechanisms have been established and operable for these many years.
The chamber earnestly believes that to bring bank asset acquisitions within the scope of section 7 of the Clayton Act is neither necessary nor desirable from the standpoint of bank merger control.
The chamber has supported provisions in the proposed Financial Institutions Act of 1957 under which the final responsibility for approval or disapproval of bank mergers would be vested in the appropriate bank supervisory agencies.
Under these provisions the appropriate agency would consider the effect upon competition of the proposed merger, consolidation, or asset acquisition, as well as banking factors.
It is the chamber's view that competition must never be the controlling consideration in evaluating the merits of a merger or consolidation of banking institutions.
In a particular community a much more important factor than competition might be the preservation of a banking institution. For example, there may be four or five good banks, highly competitive, and suddenly one finds itself in a weakened condition, but still solvent. The merger with one of the stronger banks might or might not tend to lessen competition, but if this factor alone were considered, and the merger or consolidation denied, the result might be the final liquidation of the bank to the detriment of depositors and stockholders and the public generally.
INCONSISTENCY OF PROPOSALS WITH SOUND PRINCIPLES OF GOVERNMENT OPERATIONS
In its broad delegations of power, and in enhancing overlapping and duplication in requirements for submitting reports by business concerns, and in the conduct of investigations, compiling of data, and conduct of enforcement pro ceedigs, this bill contravenes important recommendations made by the Commission on organization of the executive branch of the Government (Hoover Commission).
In its March 1955 report to Congress on Legal Services and Procedures, the Commission said (pp. 47–48) :
"Notwithstanding the concern in recent years over many phases of the exercise of administrative authority by the Federal Government, relatively little attention has been given to problems of duplication and overlapping in the jurisdiction of departments and agencies * * *
“This extension of the functions and powers of the executive branch has not taken place according to any preconceived plan. Each agency and department has been created or enlarged as the needs of the moment have seemed to demand, frequently without sufficient regard for the jurisdiction and power of other agencies and departments. It has led to overlapping jurisdiction and conflicts between the Federal agencies and their counterparts in State governments, between one Federal agency and another, and between Federal agencies and the courts."
Urging a "continuing examination of the jurisdictional boundary lines of regulatory authority," the Commission said:
"The elimination of jurisdictional conflicts, where practicable, will promote economy of government, and will relieve citizens from the burden of complying with the requirements of more than a single agency, whether State or Federal, in any given regulatory area.”
Acknowledging that regulatory functions "may be vested appropriately in a semi-independent commission or agency,” the Commission emphasized.”
"Nevertheless, it violates commonsense that two or more agencies should exercise the same type of authority over the same matter."
This matter also, in several respects, falls short of the standards urged by the Hoover Commission as guides to legislative delegations of authority. The Commission has pointed out (pp. 48-49) that the scope and definition of powers delegated by Congress to administrative agencies "are sometimes inadequately formulated in the enabling legislation. Vague terms confer an unnecessarily broad range of discretionary authority upon the administrative officials entrusted to carry out legislative mandates. At the same time agencies do not always adhere to the intent and spirit of the law. Steps to guide administrative action should be taken to sharpen and improve the legislative standards and agency compliance therewith.”
To these ends the Commission recommended that “authority delegated by the Congress to Federal administrative agencies should be clearly and precisely defind in the legislation, and agencies should strictly adhere to the letter and intent of the law."
CONCLUSION The proposals for prenotification of mergers and acquisitions, and for a mandatory waiting period before the transaction can be completed, introduce a new concept into the antitrust laws—the regulation of mergers (and many transactions that are not essentially mergers) based upon an arbitrary standard of size.
The ostensible purpose of these procedures is not to change the standards of illegal conduct set forth in present law.
Yet the result would do just this.
The Federal Trade Commission and the Department of Justice would be put under compulsion to scrutinize minutely all reported transactions.
The end result would amount to setting up a system of clearances, with attendant frustrating delays. Beneficial mergers would be disrupted, without according the parties the right to a judicial determination of the legality of the transaction.
To our knowledge, no responsible Government official nor any Member of Congress has suggested that mergers are per se to be condemned as against public policy. Indeed, it seems generally recognized that mergers are a normal growth process. In these circumstances it is difficult to see any justification for new and drastic regulation of mergers and asset acquisitions involving concerns or property valued at an arbitrary figure.
The pending proposals present many complex problems of interpretation of their requirements, and would aggravate overlapping and duplication in antitrust investigations and enforcement activities.
When the consequences of these proposals are weighed, one can only conclude that they would impose upon business concerns a burden of regulation utterly disproportionate to any theoretical gains in antitrust enforcement.
Report of the Committee on Economic Policy, Chamber of Commerce of the United
States, Washington, D. C., 1957
During the 1956 political campaigns, politicians from both major parties made substantial promises to do much in the way of preventing mergers, requiring advance approval of mergers by Federal agencies, and examining all business consolidations more rigorously.
Many fears have been expressed for the plight of small business and promises made to stop or slow down mergers. The question of undue bigness and concentrated economic power has long been a line of attack on American business.
What is the recent record of merger activity? Why do mergers take place? What is their effect on competition? How do mergers affect the public interest? To evaluate Government policy on mergers, we need to have basic information on, and thorough analysis of these and other questions.
This report attempts to bring together the information available on merger trends. It analyzes basic issues and arguments in recent controversies. It attempts to set up some criteria for judging the impact of mergers on competition and for evaluating Government policy on mergers.
HARRY A. BULLIS, Chairman, Committee on Economic Policy.
We have, in the United States, a tradition of more than a century of suspicion of concentrated economic power. Our people properly think of the American economy as a community of free business units competing within a framework of individual initiative and equal opportunity.
This tradition produced the Sherman Antitrust Act of 1890, the Clayton Act of 1914, and Federal Trade Commission Act in the same year. These acts provide the machinery to guard against monopolistic practices in business.
Our suspecion of concentrated economic power also produced, in more recent years, the Taft-Hartley Labor-Management Relations Act, which was passed in response to the prolonged industrywide strikes of 1946 and other evidence that the growing power of organized labor might be abused in ways injurious to the public interest.
Even the concentration of power in centralized Government has historically been resisted by the American people. Periods of increasing centralization have been followed by "swings of the pendulum” toward greater reliance on individual, private, or local decisions,
RECENT INTEREST IN MERGERS
Recently, there has been new interest in the problems of competition and concentration. The Attorney General set up a National Committee To Study the Antitrust Laws, which filed its report in March 1955. Also in 1955 came a wellpublicized congressional investigation of whether General Motors was "too big.” Further evidence of this interest in the problem of competition was the widespread apprehension which developed over the implications of the merger between the AFL and the CIO into one giant labor organization.
A special investigation of corporate and banking mergers by an antitrust subcommittee of the House Committee on the Judiciary both reflected and contributed to the concern over corporate mergers. In a report issued late in 1955, the subcommittee asserted that in recent years, a rising tide of industrial and bank mergers has played a significant role in bastening the reduction of competition in many areas and promoting the concentration of economic power.”
The Federal Trade Commission's Report On Corporate Mergers and Acquisitions, released in May 1955, provoked widespread comment. One columnist for a large Washington newspaper wrote:
“We have in recent months been watching a dizzy procession of mergers in business. This, as you know, increases the concentration of control of industry in fewer units and fewer hands. That has its meaning for all of us as consumers, since it makes it easier and tempting to control production and markets for bigger profits and higher prices."
Rising concern over mergers foretells the likelihood of new legislation aimed at restricting industrial acquisitions. In this legislation, we can expect the attack on big business to be selective: it seems “acceptable" for a company to grow big if it gets that way through expanded sales effort, but not if it buys up other companies. In other words, “internal expansion” is often condoned (as economically justifiable), while growth through mergers is roundly criticized.
Because of the high interest in current mergers, it is worth while to examine present merger activity in the light of historical trends. This provides a basis for judging the extent and character of the current consolidation movement. Three distinct merger waves have occurred in this country.
In the first of these three periods, consolidation through mergers was so prevalent as to raise fears of major concentrations of economic power. This was from about 1898 to 1903—a period referred to by some as the classical era of consolidation. The typical corporate structure involved in mergers during this period was the holding company, rather than the centralized operating entity. There was, however, no typical pattern among the firms that went into the formation of these holding companies. Many of the holding companies merely knit together organizations that were already closely related Standard Oil Co., incorporated in 1899, was essentially a reorganization of existing companies. Several of the big mergers combined a number of firms which had themselves already attained considerable size by means of merger.
The second intensive period of merger activity followed World War I. In 1920, the disappearance of 760 manufacturing firms by merger was reported. The number of mergers declined during the next 4 years, but from 1925 there was increasing activity until the peak year of 1929 when 1,245 mergers were listed.
The present merger movement began immediately following World War II, but it is not yet clear whether a trend really has been established. In 19447 and again in 1964-55, the annual number of mergers was higher than in any other years since 1931. In 1955, the 1931 figure was exceeded, but the annual rate was still well below that of the late twenties. The long-run trend in merger activity over the 37-year period 1919-55 is indicated in the following chart:
1 These figures include only mergers reported in Moody Investors Service and Standard Corporation Records. Estimates by the FTC are somewhat higher.
The data on which the preceding chart is based are as follows:
Sources: Federal Trade Commission. Report on Corporate Mergers and Acquisitions, 1955. Number of firms taken from Dun & Bradstreet's Reference Book. (U. 8. Department of Commerce figures unavailable for early years.) 1955 mergers total from Federal Trade Commission press release.
These figures show that it is difficult to gage the significance of the 1954–55 increase in mergers. Relating the number of mergers to the number of firms in business, the pattern of the last 2 years resembles that of 1944–46—a trend which later reversed itself without any prodding from Government. Compared to the 1930's, the present pace looks high, but compared to the 1920's, it is low.
Another way of comparing this “third wave" of consolidations with earlier trends is to look at the size of companies engaged in mergers. During the 1920's there were 14 mergers in which both parties to the merger started with assets of more than $50 million. In 8 mergers during the 1920's, assets of both firms exceeded $100 million. By contrast, in the longer period of 1940–54, 10 mergers took place between companies with assets of more than $50 million and 6 between $100 million corporations. If an adjustment were made for the relative depre. ciation of the dollar, recent large-scale mergers would appear even less significant.