by Cecile Kohrs Lindell
[Posted on February 1, 2008 - 5:27 PM]
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DiggAntitrust regulators are already salivating for a chance review software giant Microsoft Corp.'s $44.6 billion lockup of Yahoo! Inc.
It's not clear whether the Federal Trade Commission or the Department of Justice's antitrust division will win the authority to analyze the merger, a critical issue because which agency gets the case will affect the issues raised during the review and could affect the outcome.
High-profile, big dollar mergers are sought-after prizes of lawyers at both agencies. Landing one offers a chance to shine, so lawyers at both agencies are certain to tussle over the review, which will probably take a year. Early Friday, the Justice Department was already laying its claim, telling MSNBC it is "interested" in reviewing the merger.
But staffers at the FTC have the best case for reviewing the deal. Fresh from their analysis of the Google Inc.-DoubleClick Inc. merger, staff there knows the Internet advertising market, which is certain to be a major issue this time.
The FTC's review of Google-DoubleClick took about 10 months and was smaller in scale and scope than a Microsoft-Yahoo! pairing.
One irony of the previous merger fight: Microsoft risks being hoisted on its own petard because it complained about the potential competitive harm posed by the Google deal. Many of the complaints it made then are likely to be leveled against its deal. Even so, the company will likely retort that if Google was allowed to complete its deal, so too, should Microsoft.
Microsoft lawyers, like most antitrust lawyers in Washington, would probably prefer the case go to the DOJ. Unlike the FTC, the DOJ's antitrust decision has a sole decision maker, and as a result, has no need for consensus building on the merits of any given case. During the second half of the Bush administration, DOJ senior staff have been disinclined to stop deals.
Coming with less than a year left in the administration, the deal could be decided by officials appointed during the current administration, but it may linger until appointees from a new president take over the antitrust agencies sometime in 2009. Microsoft would also prefer completion of the review before Bush's DOJ appointees leave office. Microsoft's antitrust legal team has particularly close ties to current DOJ senior staff.
Microsoft's lawyer, Cadwalader, Wickersham & Taft LLP partner Rick Rule, is a former DOJ assistant attorney general for antitrust, who worked with the current holder of that job, Tom Barnett, at Covington & Burling LLP. Barnett, who is likely to leave this year as the administration grinds to an end, will leave behind two deputy assistant attorney generals--David Meyer, also a Covington alum, or Deborah Garza, who followed Rule from the DOJ to Covington and on to Fried, Frank, Harris, Shriver & Jacobson LLP before joining the DOJ last year. Meyer and Garza are the leading candidates to succeed Barnett.
European regulators, who are also certain to give the deal a painstaking review, probably hope the FTC wins the clearance battle. Both the FTC and the DOJ regularly work with foreign counterparts on a range of issues, but Barnett riled his European counterpart, Neelie Kroes, when he lambasted the Europeans last autumn for penalizing Microsoft for unfair market practices.
The DOJ's best claim to reviewing the deal is the deep expertise in Microsoft's operations developed as a result of challenging the software giant's behavior against rival browser Netscape. That assignment landed at the DOJ, however, only because the FTC deadlocked on how to proceed with allegations of misconduct by Microsoft.
The outcome of the turf battle would likely affect the issues raised in the merger review and influence whether to impose any antitrust conditions. The FTC would likely be the more aggressive of the two. The commission already has explored vertical integration issues in the software and applications business and in this merger would likely examine whether a vertical powerhouse created by combining Microsoft's dominant Explorer browser with Yahoo!'s search engine would give it market power to demand exclusive advertising contracts that would foreclose competition. The DOJ, on the other hand, has signaled that it has few concerns about vertical mergers.
The possibility of lineup changes on the commission could also cause a bumpier road for the deal. Chairwoman Deborah Platt Majoras, like Barnett, is expected to step down from her position in the coming months, likely giving fellow Republican William Kovacic a chance at the agency's reins.
The departure of Majoras would create a 2-2 party line split that could pose a problem for Kovacic. It takes a majority of commissioners to block a merger--if the vote is evenly divided on a case, the merger is allowed to proceed. Fellow Republican commissioner Tom Rosch has not been bound by party loyalties. Rosch has sided with the commission's Democrat, Jon Leibowitz, and like-minded independent, Pamela Jones Harbour, to seek appeal in one contentious merger case, and to bring and settle a nonmerger matter in recent weeks.
Whichever agency ultimately wins the authority to review the deal will also have the challenge of dealing with politics on Capitol Hill.
Already, Sen. Herb Kohl, D-Wis., chair of the Senate's Judiciary Committee, and its antitrust subcommittee, has weighed in. "Should Yahoo! accept Microsoft's offer, the subcommittee expects to hold hearings to explore the competitive and privacy implications of the deal," Kohl said in a statement. And public interest groups are already likewise issuing statements, charging the FTC's approval of DoubleClick's takeover encouraged this latest merger.
"Today's proposed acquisition by Microsoft of Yahoo!, if consummated, will create a powerful interactive Internet interactive duopoly in online media," warned Jeff Chester, executive director for the Center for Digital Democracy. "Google and Microsoft will have inordinate power to shape the online communications marketplace, including journalism, entertainment and advertising."
As they did in the DoubleClick deal, consumer advocates also will likely argue that the Yahoo! takeover should be blocked due to potential harm to Internet users' privacy.
