The Deal: Merger Enforcers Working During Government Shutdown

NEW YORK ( TheStreet) - The antitrust agencies will continue ongoing merger reviews and initiating new ones despite the shutdown of most of the federal government. So while many other types of civil investigation are brought to a halt, most aspects of merger review will move along at something close to full speed.

Although many functions of the Federal Trade Commission and the Department of Justice Antitrust Division are being halted and employees in most areas sent on hiatus, both agencies have deemed staffers assigned to pre-merger investigations to be essential personnel because the Hart-Scott-Rodino Act puts the agencies under a 30-day deadline to clear a new merger application or launch an extended investigation of the deal with a second request for information.

"Because the parties have a statutory right to file their pre-merger notification reports, the agencies have an implied responsibility to have adequate staff on hand to receive and promptly process the filings," according to a description of the FTC's plans for dealing with the shutdown posted on the commission's website.

The four merger cases in litigation also appear to be moving ahead. Although the DOJ on Monday asked the federal appeals court in Washington to stay proceedings in the agency's challenge to US Airways Inc.'s plan to acquire AMR ( AAMRQ)'s American Airlines Inc., Judge Colleen Kollar-Kotelly refused. That trial is set to begin Nov. 25.

In asking for the stay, DOJ citing federal litigators' inability to work on the case. "Absent an appropriation, Department of Justice attorneys and employees are generally prohibited from working, even on a voluntary basis, except in very limited circumstances, including 'emergencies involving the safety of human life or the protection of property,' " the DOJ said in its motion to the court. "This is creating difficulties for the DOJ to perform the functions necessary to support its litigation efforts and, accordingly, the DOJ's policy is to seek a stay in all pending civil litigation," the department said.

But Kollar-Kotelly found that DOJ is able to keep attorneys on the case, given the antitrust regulators' findings that keeping up with merger reviews and any associated litigation are necessary to protect merging parties' property and a judge has refused to stay a case.

According to the DOJ's contingency plan for the shutdown, employees will be exempted from furlough if the "are needed to conduct or directly support ongoing criminal trials, prepare for criminal proceedings that have been scheduled for court ... and conduct or support ongoing civil litigation in which a continuance cannot be obtained."

Employees involved in merger investigations are among those exempted because of the Hart-Scott-Rodino deadlines and because anticompetitive mergers can pose "peril to property in which the United States has an immediate interest."

In her order denying the DOJ's request for a stay, Kollar-Kotelly cited the pressing need for resolution in the case -- the merger is central to the Chapter 11 reorganization plan of American parent AMR, involves two major airlines critical to the flying public and has put a significant amount of money at stake -- as reasons to stick with the expedited discovery and trial schedule. "A stay at this point would undermine this schedule and delay the necessary speedy disposition of this matter," she wrote. "It is essential that the Department of Justice attorneys continue to litigate this case."

Separately Tuesday, Texas Attorney General Greg Abbott announced that the Texas AG's office would drop out of the DOJ's lawsuit. AGs from six other states and the District of Columbia remain as plaintiffs with the DOJ. Abbott said Texas dropped out after reaching a deal with the air carriers in which the new American Airlines will maintain scheduled daily service to more than 20 airports in Texas and the Dallas-Fort Worth International Airport will remain a large hub for the combined airline and the merged carrier will maintain its headquarters in the Dallas-Fort Worth area.

Although Kollar-Kotelly found that the DOJ is capable of continuing litigation efforts, that doesn't mean keeping up won't be hard for the agencies. The agencies have said they will cut back on the staff devoted to process pre-merger notifications and will maintain only the personnel needed to keep ongoing merger review and litigation on track.

"The government shutdown comes at a particularly unfortunate time for both antitrust agencies, given the sequester's effect on staffing and the heavy case loads both agencies were managing," said Darren Tucker, antitrust partner at Bingham McCutchen LLP.

He noted that both agencies are in the middle of merger trials -- the FTC is challenging St. Luke's Health System Ltd.'s acquisition of Saltzer Medical Group P.A., Idaho's largest independent, multispecialty physician practice group, and the DOJ is in court to breakup Bazaarvoice Inc.'s consummated merger with rival online rater PowerReviews Inc. Also in pretrial stages are the DOJ's airline litigation and the FTC's challenge to Ireland's Ardagh Group SA's planned acquisition of a rival glass bottle and container maker, the North American unit of France's Cie. de Saint-Gobain SA.

The DOJ wrapped up its argument Monday in its attempt to break up the merger of Bazaarvoice and PowerReviews. The companies were scheduled to begin their argument for preserving the merger Tuesday before Judge William H. Orrick.

So far, the trial has gone as expected since it started Sept. 23. The DOJ presented numerous internal documents from the companies citing executives' statements calling for the elimination of "price erosion" in the ratings business as well as economic data showing the ratings business to be highly concentrated when the merger occurred in 2012.

Bazaarvoice is expected to present evidence showing that in the year-plus since the merger was closed, competition has remained robust and prices competitive. Despite the antitrust agencies' pledge to accept Hart-Scott-Rodino notifications and apply the usual waiting periods, Tucker said merging parties would be wise to "build some additional time into the merger review process."

The FTC in its shutdown contingency plan said it has a docket of approximately 250 active matters and, on average, it takes anywhere from three attorneys, one to two economists, plus two administrative and technical support personnel to staff a case at the initial phase. Each case in litigation typically takes 15 or more attorneys, two to three economists, plus five to six administrative and technical support personnel, the FTC said.

As a result the FTC said it will likely need up to 82 employees to staff merger investigation and litigation efforts. The DOJ did not provide a rundown of its merger docket, but it has a similar workload and is likely to have comparable staffing needs.

-- Written by Leon Lazaroff in New York

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