Maximizing Efficiencies: Getting Credit Where Credit Is Due?

Efficiencies are frequently a significant part of the business rationale for a transaction. However, receiving credit for the efficiency-enhancing aspects of a combination in a merger review is often difficult. By the Federal Trade Commission and Department of Justice’s own account, “the antitrust laws give competition, not internal operational efficiency, primacy in protecting customers” and “efficiencies are most likely to make a difference in merger analysis when the likely adverse competitive effects, absent the efficiencies, are not great.”1 Recent transactions, such as H&R Block/Tax Act, AT&T/T-Mobile, and OSF Healthcare/Rockford, continue to confirm that receiving credit for efficiencies is no easy task. Either because the agencies and courts have tended to set the bar very high or because efficiencies are notoriously difficult to quantify, some rightfully may ask whether merging parties should save the time and effort required to prepare a robust efficiencies argument in favor of focusing on the potentially dispositive issue of market definition and attacking theories of competitive harm. Efficiencies, however, should not be abandoned despite the challenges in demonstrating them. Indeed, a 2009 FTC study demonstrated that the agencies do examine efficiencies—the FTC’s Bureau of Competition staff memoranda analyzed efficiencies in 37 of the 48 closed investigations and in 61 of the 121 consent decree cases over a ten-year period.2 Similarly, efficiencies are touted as a rationale in many closing statements and thus can help the agencies justify clearance decisions.3 Thus, forgoing an efficiencies argument when one exists can be costly. But given the burdens of developing substantiated efficiencies, it is critical for the parties to focus their efforts in the right areas.