In U.S. mergers, no one waits for this waiting period

Reuters
US Airways and American Airlines signs are pictured at Philadelphia International Airport
.

View photo

US Airways and American Airlines signs are pictured at Philadelphia International Airport in Philadelphia, Pennsylvania on December 9, 2013. REUTERS/Mark Makela

By David Ingram

WASHINGTON (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 (AAL.O) on December 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 November 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(MSFT), 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)

Rates

View Comments (3)

Recommended for You

  • Tycoon buys 30 Rolls-Royces for Macau hotel

    A Hong Kong tycoon has placed the biggest ever order for Rolls-Royce cars, agreeing to buy 30 Phantoms to chauffeur guests at a luxury resort he's building in the global gambling capital of Macau. Stephen Hung's $20 million purchase surpasses the 14 Phantoms bought by Hong Kong's Peninsula Hotel in…

    Associated Press
  • The New 2015 Sonata®: A Step Above the Competition

    There's a Sonata® that's perfect for you, and this is your chance to build it! Visit the Hyundai® Official Site to customize your 2015 Sonata® today!

    AdChoicesHyundaiSponsored
  • Before You Buy Alibaba, Check Out 4 Top China Stocks

    Before You Buy Alibaba, Check Out 4 Top China Stocks While investors gear up for Alibaba Group 's (BABA) hotly anticipated initial public offering, don't forget about other Chinese stocks that are worth keeping an eye on. Today's Young Guns Screen of

    Investor's Business Daily
  • Only 4 states will see cuts to food stamps

    Cuts to the nation's food stamp program enacted this year are only affecting four states, far from the sweeping overhaul that Republicans had pushed, an Associated Press review has found. As a result, it's unclear whether the law will realize the estimated $8.6 billion in savings over 10 years that…

    Associated Press
  • Play

    Citi, Bank of America Offer Discounted Mortgages

    Citigroup and Bank of America will offer mortgages at discounted interest rates to help borrowers with low incomes or subprime credit. AnnaMaria Andriotis joins MoneyBeat. Photo: Getty.

    WSJ Live
  • "The Retiree Next Door": How successful retirees stretch their savings

    "The Retiree Next Door": How successful retirees stretch their savingsBy the time she hit her late 40s, Toni Eugenia wasn’t sure she would ever be able to retire. Eugenia, 56, a pharmacy technician who lived in Houston, was nearly $200,000 in debt and

    Yahoo Finance
  • SHOE COMPANY: Our CEO Just Disappeared And Most Of The Money Is Gone

    "and like that: he's gone." This is an actual headline from a company press release: "CEO and COO disappeared, most of the company's cash missing." (Via FastFT) In a statement, German-based shoe company Ultrasonic said its CFO,  Chi Kwong Clifford Chan, has been unable to reach the company's CEO,…

    Business Insider
  • Apple to unveil new iPads, operating system on Oct. 21 : report

    The company plans to unveil the sixth generation of its iPad and the third edition of the iPad mini, as well as its operating system OS X Yosemite, which has undergone a complete visual overhaul, the Internet news website said. Trudy Muller, a spokeswoman for Apple, declined to comment. The iPad is…

    Reuters
  • Hyundai Elantra: Features & Benefits Come Standard

    More interior space, alloy wheels standard, 145 HP. Explore all the features and benefits of the Elantra at the Hyundai Official Site.

    AdChoicesHyundai®Sponsored
  • Margaritaville casino owners seek bankruptcy

    The owner of Biloxi's Margaritaville casino has filed for Chapter 11 bankruptcy protection Tuesday, only hours before a hearing where the landlord aimed to seize the property. The filing by MVB Holding LLC in U.S. Don Dornan, a lawyer for landlord Clay Point LLC, said the company had planned to ask…

    Associated Press
  • Embraer to sell 50 E-175 jets to Republic in $2.1 billion deal

    Brazil's Embraer SA, the world's third largest commercial planemaker, said on Wednesday it booked a firm order from U.S. The deal, which will be included in Embraer's order book for the third quarter, is valued at $2.1 billion, the planemaker said in a securities filing. The planes will be operated…

    Reuters
  • Here's What Mark Cuban Wishes He Knew About Money In His 20s

    Cuban is the owner of the Dallas Mavericks basketball team. Billionaire investor and entrepreneur Mark Cuban is generous with his advice. When we asked him what he wishes he'd known about money in his 20s, he said:

    Business Insider
  • Gold loses luster on Fed; Barclays cuts forecast

    Barclays cuts gold forecasts, sees increasingly bearish backdrop Bloomberg MA MB MC MD ME SAN FRANCISCO (MarketWatch) — Gold prices dipped Wednesday on concerns about a stronger dollar ahead of the Federal Reserve policy statement and in response to Barclays lowering its gold forecast.

    MarketWatch
  • Billionaire Investor Says Chinese People Work Harder And Western Companies Could Face Deep Trouble After Alibaba IPO

    Michael Moritz, the chairman of VC firm Sequoia Capital, is a huge fan of Chinese internet companies and reiterated his enthusiasm for the Chinese market in an interview with The Wall Street Journal Wednesday. The billionaire investor described the Alibaba IPO as a “major landmark event” that is as…

    Business Insider
  • Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More

    Top Analyst Upgrades and Downgrades: AEP, BHP, GE, Incyte, 3M, Tyco, Under Armour and More Stocks were firm on Wednesday morning ahead of the FOMC meeting outcome. Tuesday’s rally may have sparked higher interest again, and investors are looking for bargains

    24/7 Wall St.
  • $40-Off Limited Time Offer From Norton

    Award-winning PC protection that doesn't slow you down. Easy installation & money-back guarantee. Download today with our $40-off limited time offer.

    AdChoicesNorton by SymantecSponsored
  • Fed renews zero rate pledge, but hints at steeper rate hike path

    The Federal Reserve on Wednesday renewed its pledge to keep interest rates near zero for a "considerable time," but also indicated it could raise borrowing costs faster than expected when it starts moving. In a statement after a two-day meeting of its policy-setting Federal Open Market Committee,…

    Reuters
  • Boeing may have outfoxed Musk, but it could have bigger problems

    Elon Musk is arguably one of the greatest entrepreneurial minds of the 21st Century, but he was outsized an old school aerospace giant. Boeing won the bulk of NASA’s contract for a space taxi.  One of the other companies vying for the deal is SpaceX, the company headed by Tesla’s Musk, will get a…

    Talking Numbers
  • The Government Keeps Helping People Buy Failing Cold Stone Creamerys

    Would you loan someone money to buy a Cold Stone Creamery franchise if you knew that more than a quarter of those loans default? Over the last decade, franchisees in the Cold Stone Creamery ice cream chain defaulted on 29 percent of working-capital loans backed by the government, costing taxpayers…

    BusinessWeek
  • Play

    What the Fed Meeting Means for Bonds

    Janet Yellen & Co. are expected to hint at their timetable for raising interest rates. Here's how investors should prepare ahead of the meeting.

    WSJ Live
  • Romney-Sized IRAs Scrutinized as Government Studies Taxes

    The preliminary report attaches data to an issue that drew attention during the 2012 presidential campaign, when Republican nominee Mitt Romney reported an IRA worth $20 million to $102 million. Senate Finance Committee Chairman Ron Wyden said many of these "massive" accounts come from deals…

    Bloomberg
  • Russian billionaire placed under house arrest

    A billionaire Russian tycoon was placed under house arrest Tuesday in a money-laundering case that has drawn comparisons with a government crackdown on Russia's Yukos oil company more than a decade ago. The Investigative Committee, Russia's top investigative agency, said that Vladimir Yevtushenkov,…

    Associated Press
  • Four Things That Can Send Your Resume to the Trash

    We asked recruiting managers and career experts about resume errors that cause them to crumple and toss a resume - their answers may surprise you.

    AdChoicesMonster.comSponsored
  • Play

    Tues., Sept. 16: Watch Humana Stock

    Humana, Global X Social Media Index ETF and Majesco Entertainment are among stocks to watch. WSJ's Chris Dieterich discusses the details with Michael Casey. Photo: Humana

    WSJ Live