* Merging companies close deals before 60-day-or-more wait
* Nixon-era Tunney Act was meant to battle political
corruption
* Justice Department says practice of closing deals is legal
By David Ingram
WASHINGTON, March 5 (Reuters) – Sometime soon, maybe in the
next month or so, a federal judge is expected to decide whether
the creation of the world’s biggest passenger airline, as
envisioned by two companies and the U.S. Justice Department, was
really a good idea.
But even if she decides to give the merger a thumbs down, an
unlikely outcome that would shake investors and the public, it
might be too late for her to do much anyway.
The two companies, American Airlines and US Airways,
consummated their merger to become American Airlines Group Inc
on Dec. 9, almost three months ago, according to a
securities filing at the time. Executives distributed new stock
on the NASDAQ exchange, launched a marketing campaign and touted
the future benefits of an integrated flight network, all without
a final judgment on whether the merger was legal.
Records reviewed by Reuters show that corporations in the
last three years of mergers and acquisitions never waited for
the end of a waiting period created by a 1974 antitrust law
known as the Tunney Act. The law said the waiting period should
be at least 60 days.
Officially known as the Antitrust Procedures and Penalties
Act, the law was designed to slow down deals that U.S. antitrust
enforcers struck with merging companies. The time is meant to
subject the deals to extra scrutiny by the public and a judge,
to deter corrupt influence on the legal process.
As one of America’s guardians of fair competition, the
Justice Department’s Antitrust Division will sometimes challenge
big mergers with a lawsuit. If settled, the cases are subject to
the Tunney Act waiting period before they are final.
But in 18 antitrust settlements filed in court by the
Justice Department since January 2011, the deals on average
closed 12 days later, according to filings with the U.S.
Securities and Exchange Commission and public statements from
the companies.
The companies did so with the consent of the department,
which says the practice is legal and that companies would miss
out on savings if they held off. None waited for a judge’s
approval before closing.
Never has the Tunney Act stopped a merger from going
through, and because of legal precedent and pressure from the
Justice Department, it would be hard for a judge to stop one.
While the law prohibits a judge from ruling on the legality
of a settlement within 60 days, “the legislation doesn’t, by
itself, prohibit the closing of any transaction,” said Joe Sims,
a partner at the law firm Jones Day who represents American
Airlines.
The clock started on the airlines’ waiting period on Nov.
12, the day the Justice Department filed court papers to settle
its suit against the merger. The clock can run indefinitely.
Because of the law, U.S. District Judge Colleen
Kollar-Kotelly in Washington, D.C., has invited public comment,
and the Justice Department is due to file any possible
modifications of the settlement on Monday. The judge could
reject the settlement, although no antitrust lawyers contacted
by Reuters expect that she will.
NEW COLORS ON THE PLANES
Critics assail the growing irrelevance of the Tunney Act as
yet another example of a weakening of U.S. policies launched in
the 1970s and meant to check the influence of money and lobbying
on government operations.
“If the merging parties do this, then we’ve got a completed
merger. What’s a judge supposed to do?” said Seth Bloom, a
former chief counsel to the U.S. Senate Antitrust Subcommittee.
Bloom, now in private practice, said the law’s waiting
period had become largely toothless. “They’re painting new
colors on the planes. It’s done,” he said.
At stake for merging companies, from airlines to
manufacturers, are millions of dollars in savings they get by
integrating their businesses months before a judge hands down a
ruling on the legality of the settlement, a ruling that some
call a formality anyway.
“There would be a big practical issue if there was a
different rule,” said Sims, who worked at the Justice Department
in the 1970s. “It would be, I think, considerably more difficult
for the Department of Justice to convince people to enter into
consent decrees if they knew the consent decrees were not going
to be effective until the end of some indeterminate amount of
time.”
The airlines consummated their deal after a U.S. Bankruptcy
Court judge in New York said they did not need to wait for the
end of the Tunney Act’s waiting period.
NIXON-INSPIRED LAW
Little known outside antitrust circles, the Tunney Act was
passed amid fears that the Nixon White House tampered with a
case against ITT Corp. The company, then one of the largest in
the United States, had offered to help finance the 1972
Republican national convention.
Although no quid pro quo was proven, Congress created the
waiting period to give federal judges time to inspect antitrust
settlements for political meddling, and to allow the public to
comment.
During the waiting period, the law requires companies to
disclose information about their lobbying and instructs the
Justice Department to consider public comments about a
settlement. It also commands that a judge rule on whether a
settlement “is in the public interest.”
Because of the Tunney Act, the airlines were required to
disclose details of their lobbying that might not otherwise have
come to light. US Airways representative Jim Millstein spoke six
times in two months with Deputy Attorney General James Cole, the
U.S. Justice Department’s No. 2 official, the airlines
disclosed.
A federal judge ruled last year that nothing in the law
explicitly bars companies from closing a deal early, so long as
a judge has not entered an injunction to preserve the status
quo.
To block mergers from closing “could interfere with many
time-sensitive deals or prevent the realization of substantial
efficiencies,” the Justice Department wrote in a 2006 court
filing. A spokeswoman declined to comment.
‘PLAYING GAMES’ WITH LAW
Not all judges have gone along with closing deals early. In
1988, a federal judge issued a preliminary injunction to
preserve the status quo in a merger settlement until he finished
his Tunney Act review.
Companies are willing to risk being in limbo because of the
widespread belief among antitrust lawyers that no judge will
seriously challenge a settlement once the Justice Department and
merging companies have hammered one out.
In 1995, during the Justice Department’s antitrust case
against Microsoft Corp, an appeals court in Washington,
D.C., warned judges against second-guessing the department’s
expertise and decisions.
Judges should not “assume the role of attorney general,”
which would overstep the constitutional line between judicial
and executive functions, the appeals court said.
Darren Bush, a University of Houston law professor who has
studied the Tunney Act, said: “In the wake of that case law, why
on earth would I even bother making the parties wait?”
Informed that parties are not waiting, the Tunney Act’s
architect, former U.S. senator John Tunney, said the practice
undercuts the “cooling off” period he intended.
“I’m distraught to think that the Justice Department is
playing games with that law. I think that that’s a big, big
mistake,” Tunney said in a phone interview. He lost reelection
in California in 1976 and went on to practice law. Now 79 and
retired in Idaho, he attacked the Justice Department for going
along with companies’ wish to close early.
“I think it’s a violation. I think it’s a violation of the
clear meaning of the law,” he said.
(Editing by Howard Goller)
