ONLINE CHAPTERS
The managers of both companies continued to
fight for their combination, despite the FTC’s threats.
When presenting their argument to the federal judge
assigned to the case, lawyers for the companies
expressed the companies’ willingness to sell off stores
in order to satisfy the FTC and enhance competition;
they also contended that the FTC had improperly
defined their industry when determining the
Herfindahl Index. The FTC had limited their industry
classification to office supply superstores, so there
were only three main competitors and an HI of 3,634(already highly concentrated). The HI would increase
to 6,394 after the merger. Lawyers for the companies,
however, stated that the appropriate industry
classification should be discount retailers, and
should include such stores as Walmart and K-mart in
addition to office supply stores. The judge in the case
disagreed with the companies’ lawyers and sided with
the FTC in barring the merger from taking place. The
managers of Staples and Office Depot announced
their intentions to abandon their merger plans shortly
thereafter.Other Antitrust Considerations
Managers contemplating a merger now face antitrust scrutiny from regulators beyond just domestic
regulators. Globalisation can play an important role in merger approval.21-6b INTERNATIONAL REGULATION OF MERGERS AND
ACQUISITIONSInternational regulatory authorities, especially in Europe, have become more proactive when dealing with
global, large-scale mergers. The European Commission (EC) first signalled its more stringent antitrust
regulatory authority in 1999 when it vetoed the proposed merger of US communications giants WorldCom
and Sprint. The EC expressed concerns about the pricing power that the combined company could have
if the second- and third-largest US communications companies (behind then industry leader AT&T)
merged to become the first- or second-largest communications company in many European markets. The
managers of both WorldCom and Sprint abandoned their effort to merge after the EC’s decision.
EC competition commissioner Mario Monti created an international stir in 2001 when he denied
the petition to merge filed by General Electric and Honeywell, although the merger had already been
approved by US antitrust authorities. Monti’s stern defence of his position and denial of the petition on
appeal sent a clear message that companies with international operations that are considering a merger
must take into account antitrust authorities outside the United States, even if the merger is between US
companies. Monti caused an even bigger stir when, in early 2004, his commission sued Microsoft in an
attempt to force the company to uncouple application packages from its operating system (Windows).
The commission maintained that this tie gave Microsoft monopoly power. The EC won this court case
in 2005, and the top European Union court upheld this ruling in September 2007. Five months later,
European regulators imposed a record €899 million ($1.4 billion) fine on Microsoft for failure to comply
with demands to end its alleged anticompetitive practices. Adding insult to injury, these regulators
opened a new antitrust case against Microsoft in early 2009, seeking to force the company to open up its
Explorer Internet software to competing companies.
More recently, the EC made headlines by signalling initial objection to an acquisition of Sun
Microsystems by Oracle, suggesting that Oracle’s ownership of a key Sun asset, MySQL, would be
a detriment to competition. After five months of due diligence, and well after the FTC approved the
transaction, the EC gave their blessing. An important implication of this process is the importance andexample