In U.S. Mergers, No One Waits For This Waiting Period
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.
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.
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.
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.
District Judge Colleen Kollar-Kotelly in Washington, D.
, 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.
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.
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.
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.
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.
O), an appeals court in Washington, D.
, 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.
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.