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- P. J. O'Rourke
Bush Antitrust Gang's Surprising ActivismThe Deal - Jaret Seiberg – November 3, 2001
Corporate dealmakers may soon start yearning for the good old days when the Clinton administration ran the antitrust agencies.
The Federal Trade Commission and Department of Justice have launched a torrent of merger litigation that eclipses anything that occurred during the tenures of former FTC Chairman Robert Pitofsky and former Assistant Attorney General Joel Klein.
The agencies have sued to stop large deals, to undo mergers already completed and to punish companies that failed to fully comply with the Hart-Scott-Rodino Antitrust Improvements Act. The suits vary in basis from invoking traditional antitrust theories to novel approaches regarding market definitions and deal size.
"I have never seen such a flurry of complaints," said Tefft Smith, a partner at Kirkland & Ellis in Washington, D.C.
"There has been unprecedented activity here," agreed Joel Mitnick, a partner at Sidley Austin Brown & Wood in New York. "If this was a Democratic administration, people would be calling them activists."
The tough enforcement should not surprise dealmakers. FTC Chairman Timothy J. Muris and Assistant Attorney General Charles James have repeatedly said that they differ only at the margins from their predecessors and that they did not plan to loosen merger enforcement. Despite those ostensibly marginal differences, regulators have aggressively used litigation to confront anti-competitive deals.
"There was a tendency to assume that the new administration would be more lenient," said FTC Competition Bureau Director Joe Simons. "That was unjustified.''
The FTC has ruffled the most feathers with its attacks on deals already closed. It has already won one case. Airgas Inc. agreed Oct. 26 to divest a nitrous oxide business to resolve charges that its $90 million acquisition of Puritan Bennett Medical Gas in January 2000 resulted in a monopoly.
Still pending is the Oct. 10 suit against MSC.Software Inc. The FTC charged that MSC's June 1999 acquisition of Universal Analytics Inc. and its November 1999 purchase of Computerized Structural Analysis and Research Corp. gave the simulation software company a monopoly for a product known as advanced Nastran solvers. It wants MSC to split its Nastran business into three units, two of which would be spun off as separate companies or sold. The case is expected to go to trial in June.
The FTC on Oct. 25 sued Chicago Bridge & Iron Co., which in February bought Pitt-Des Moines Inc.'s water and engineering unit. The FTC charges the deal hurts competition for the construction of large water storage tanks, and it wants to undo the transaction.
The agencies have wielded an equally heavy stick against open deals. The Department of Justice threatened to block General Dynamics Corp.'s acquisition of Newport News Shipbuilding Inc. It also filed suit Oct. 23 to prevent SunGard Data Systems Inc. from buying the disaster recovery unit of Comdisco Inc. That case is set for trial Nov. 8.
James also threatened July 27 to block UAL Corp.'s acquisition of US Airways Group Inc. and sued 3D Systems Inc. on June 6 over its acquisition of DTM Corp. That latter case settled Aug. 16 when the firm agreed to license technologies to create a new competitor in the market.
The FTC voted unanimously Oct. 23 to block the acquisition of Vivendi Universal SA's Seagram unit by Diageo and Pernod Ricard SA, charging Diageo would win too much control of the rum market.
Beyond the litigated cases, the agencies also have entered nearly a dozen consent decrees in which merging companies have agreed to divest businesses to avoid an antitrust challenge. These range from the blockbuster Chevron Corp.-Texaco Inc. merger to smaller deals, such as Premdor Inc.'s acquisition of International Paper Co.'s Masonite division.
Antitrust experts said these cases are remarkable because they involve aggressive interpretations of antitrust law. Both the MSC and Seagram cases rest on market definitions. In both reviews, the FTC defined the markets narrowly when it could have identified a broader market in which the transaction would not have been ruled anti-competitive. In Seagram, the FTC defined the market as rum products, rather than distilled spirits.
The agencies have shown no mercy for violations of the Hart-Scott-Rodino Act. The Justice Department sued Computer Associates International Inc. on Sept. 28 for illegally coordinating activities with Platinum Technology International Inc. while their merger was under review. Justice is seeking $1.27 million in civil penalties for the so-called gun jumping offense.
Hearst Corp. agreed Oct. 11 to pay $4 million to settle charges that it failed to disclose 4(c) documents in connection with its purchase of Medi-Span Inc. Under Section 4(c) of the HSR Act, companies must disclose analyses and other documents used to evaluate whether to proceed with the transaction.
Also under attack is Boston Scientific Corp. A federal judge ruled Sept. 28 that the company did not abide by a 1995 FTC consent decree in connection with its acquisition of Cardio-Vascular Imaging Systems Inc. and Scimed Life Systems Inc. The judge still must determine a penalty.
Why the sudden burst of litigation? Mary Azcuenaga, a former FTC commissioner who is now a partner at Heller Ehrman White & McAuliffe in Washington, said Muris and James may fear corporations would start flooding the agencies with anti-competitive deals in the mistaken assumption they would be more accommodating than the Clinton antitrust team. The best way to deter bad mergers is to file a spate of lawsuits early on that warn dealmakers that the antitrust enforcers are still at work, she said.
"It is important to establish that credibility right upfront, and they have done that in a very aggressive and credible way," Azcuenaga said. "People have to believe they will bring cases."
William Baer, a partner at Arnold & Porter in Washington, who headed the FTC's competition bureau under Pitofsky, said the agencies also were worried that companies would view a recent lifting of the HSR filing threshold from $15 million to $50 million as meaning that any deal worth less than $50 million was exempt from review.
"In the past very few deals which were nonreportable were challenged by the agencies," Baer said. "That certainly led some to wonder when the threshold was increased to $50 million if anything below the threshold would be largely immune from enforcement."
Jonathan Baker, a professor at American University law school and a former FTC economic bureau director, said many of the challenges involved mergers that would reduce the number of competitors in a market to two or one. Such deals often are opposed by Republicans and Democrats, he said.
"They are bringing cases where they believe it is a merger to monopoly," Baker said. "Even in the least interventionist days of the Reagan administration, the agencies would have brought cases that were mergers to monopoly."
Baker said it will be enlightening to see which deals the FTC and Department of Justice allow to proceed. "It would be in the cases they did not bring that you would learn about them," he said.
So far that evidence is limited. The FTC deadlocked 2-2 on whether to challenge PepsiCo Inc.'s acquisition of Quaker Oats Co. and on General Mills Corp.'s acquisition of the Pillsbury business from Diageo. They also let Phillips Petroleum Corp. acquire Tosco Corp. without requiring divestitures.
But these cases say little. Muris was recused because of a conflict of interest in the two tie votes. Also, several lawyers said the FTC would have been unlikely to challenge any of the deals if Pitofsky was still there. The only difference may have been the issuance of consent decrees rather than deadlocked votes, the lawyers said.
For the foreseeable future, antitrust lawyers expect more litigation. "We were hoping to be this active," the FTC's Simons said. "We want to be very aggressive."
Taking Care of BusinessThe New York Times - by Paul Krugman – October 29, 2001
Cynics tell us that money has completely corrupted our politics, that in the last election big corporations basically bought themselves a government that will serve their interests. Several related events last week suggest that the cynics have a point.
Consider, for starters, the airport security issue. On Thursday morning this newspaper reported that London- based Securicor — the biggest of the three companies that provide almost all airport security in the United States — was threatening to sue for damages if baggage screening is taken over by federal employees. This just two weeks after we learned that Securicor's U.S. subsidiary — which had already been fined for employing convicted felons — continued to hire employees without checking their background after Sept. 11, and then lied about it to regulators. Under the circumstances, to claim that federalizing the business would represent a "taking" showed remarkable chutzpah. (Chutzpah, according to the classic definition, is when you kill your parents, then plead for mercy because you're an orphan.)
But the company evidently has friends in high places. Later that day the Bush administration endorsed the proposals of House Republican leaders, who have refused to allow an airline security bill to come to a vote unless it leaves baggage screening in private hands. The rhetoric behind this position emphasizes the supposed advantages of the private sector — competition, accountability, etc. But there is little real competition in this industry, and — as we've just seen — not much accountability for companies with the right connections.
Then there was the House "stimulus" bill. The remarkable thing we learned from that bill was that conservative politicians — who used to claim that they were improving incentives by reducing marginal tax rates, and that it was just an incidental side effect that big corporations and wealthy individuals were so richly rewarded — no longer feel the need to disguise their payoffs. The core of the bill was a repeal of the corporate alternative minimum tax retroactive to 1986, which means that selected companies would immediately receive huge lump sum payments from the government, totaling around $25 billion, with no incentive effect at all.
The bill's sponsors claim that the money would be invested and used to create jobs, but it's hard to see why: a potential investment that Texas Utilities or ChevronTexaco wouldn't have made a week ago, because the project won't yield a sufficiently high return, will seem no more profitable after each company gets its $600 million thank-you gift. And there are no strings attached to those gifts: if the companies want to, say, pay huge bonuses to top executives, they can. Republicans have always depended on the kindness of corporations, but this bill takes that faith to extremes.
True, defenders of the House bill remind us that "business" doesn't just mean giant corporations — it also means the mom-and-pop shop around the corner. Indeed — but the tax refund wouldn't be going to mom-and- pop shops. Where it would go, disproportionately, is to energy and mining companies. Why? Because they already receive so many special tax breaks that in the absence of the alternative minimum tax many would pay little or no taxes. Now the House proposes not only to remove that little inconvenience, but to refund the taxes they've paid for the past 15 years.
Just to cap off a great week for the mining interests, the Bush administration also announced on Thursday that the Interior Department would no longer be able to veto mining projects on public land. You might think that extracting minerals from public land, without even paying a royalty, was a privilege rather than an entitlement; but in today's Washington, financial might apparently makes right.
I'm sure I'll be accused of being unpatriotic for suggesting that the administration and its Congressional allies are pandering to special interests at a time like this. That, of course, is what they are counting on — that and the difficulty of getting people's attention when the news is all anthrax, all the time.
But the truth must be spoken. Lately our government has not exactly inspired confidence; its response to terrorism is starting to look a bit scatterbrained. But on some subjects our leaders are quite clearheaded: whatever else may be going on, they make sure that they are taking care of business.
Fighting the Looming RecessionRepresentative Bernard Sanders (I-VT) – October 10, 2001
Today America is at risk not only from terrorists who threaten our physical security, but from an economic downturn that threatens the financial security of middle class and working people. Just as we must take effective action to crush terrorism, we must take prompt and decisive action to prevent the nation from sliding into a serious recession.
Our economy was slowing down even before the horror of September 11. Unemployment in August was at its highest level in almost four years. Housing starts fell by almost 7 percent in August. Industrial production, especially in manufacturing, fell in July and August. Manufacturing output in August was down 5.5 percent compared to last year, and exports fell 2.6 percent. Retail sales declined for four consecutive weeks in late August and early September. During the last year, we have lost more than one million manufacturing jobs. The most recent economic statistics show that new claims for unemployment insurance benefits are rising fast -- 15.5 percent higher than just a month ago, and 75 percent higher than a year ago.
In response to this looming recession the 55 member House Progressive Caucus has developed a $200 billion initiative to revitalize the economy and, at the same time, to protect Social Security and Medicare. This program has four parts:
First, we must protect laid-off workers by extending unemployment insurance coverage to 52 weeks and increasing unemployment benefits by $100 a week. Currently, unemployment benefits are often insufficient to pay for housing, food and other basic necessities. This proposal not only supports the unemployed in their time of need, but it also stimulates the economy by putting money into the hands of people who will spend it quickly.
Second, we must put unemployed Americans back to work at meaningful, decent paying jobs. While we combat recession we can simultaneously address some of the major unmet needs facing our country. Now is the time to tackle the national crisis in affordable housing. Now is the time to move away from our dependency on Mideast oil by building sustainable energy projects with wind turbines, biomass and solar energy. Now is the time to restore clean water with modern water treatment plants for our communities. Now is the time to provide new schools and classrooms for our children, rather than the crumbling buildings that many of them study in.
Third, at a time when programs that protect the children, the elderly and the sick are in danger of being cut because of inadequate federal and state budgets, we should increase funding for health care and social services that protect the weak and vulnerable. We must make certain that the elderly stay warm in the winter and children continue to attend Head Start and childcare. This initiative will also enable families of the unemployed to keep their health care, and workers to receive job training.
Lastly, we must provide tax rebates to workers who do not earn enough to pay income taxes and who did not receive the $300 rebate. I am delighted that President Bush has apparently agreed to this idea. This approach helps workers most in need and, again, provides an immediate stimulus for our economy.
The Progressive Caucus' economic stimulus package is big enough to give the economy the immediate boost it needs, and responsible enough to protect Social Security and Medicare. Unlike the President's proposal, and other Congressional stimulus packages which are paid for by draining the Social Security Trust Fund, the Progressive Caucus' approach will be paid for by freezing the tax cuts for the wealthy that were enacted by Congress earlier this year.
At this moment of crisis in the United States it is time for all to contribute their fair share, to do their part. Thousands of men and women in the National Guard are now separated from their families as they serve their country. The American active duty military has been mobilized, and their lives are at risk. Hundreds of brave firemen and police officers have already fallen. Within that context, we must ask the wealthy to do their part, too. It is time to rescind the hundreds of billions in tax cuts recently provided to the wealthiest one percent of Americans, those earning over $375,000 a year.
The choice is clear. We can pay for a stimulus package and other emergency spending by, once again, running up huge deficits and dipping into the Social Security Trust Fund or we can ask the wealthiest people in America to do without the tax breaks that they will begin receiving in a few years. I think that most Americans will not have difficulty in seeing which approach makes more sense.
If there is a silver lining in the dark cloud that has come over us in recent weeks, it is the increased sense of community that so many Americans feel in the wake of this crisis. This renewed sense of community can, I believe, not only help to protect our national security, but also form the basis for an important national discussion of the pressing economic needs facing our country. The United States is a great nation. Now is the time to develop a vigorous economic program that protects the economic security of all Americans.
President Bush Continues to GrowEmployee Advocate - http://dukeemployees.com - October 5, 2001
It has been said that Gorge W. Bush is growing into the presidency. We have to admit that it is true. He has already grown more than we ever thought possible.
We pledged to support him in whatever action he took after the attacks of September 11, 2001. We did this, because now is no time for discord among Americans, not because we thought that he would handle the job particularly well. We really thought he would attempt to bomb Afghanistan into oblivion, hit few military targets, kill and injure many civilians, and make the United States even more despised as a worldwide bully.
To date, he has done none of the above. He has built a coalition of nations against terrorism. He has made an effort to cut the money supply to terrorist organizations. If no other efforts were made, these two would be more effective than indiscriminate bombing, for the sake of show. But, President Bush plans to do a lot more. He plans to spend the money and years necessary to seek out terrorist, worldwide.
Refreshingly, he admitted that the effort would take years and cost American lives. He is off to a good start, as nothing worthwhile can ever be built on lies.
President Bush has already exceeded all expectations, and continues to do so. The New York Times reported that he has proposed an aid package of $320 million for the people of Afghanistan. A small person would not see the wisdom of doing this.
He is also proposing to make sure the aid gets to the people. Often times, the major beneficiaries of American aid are the tyrannical rulers of the country.
Many knowledgeable people have said that there is not a lot left to bomb in Afghanistan. The country was bombed for ten years. The people are destitute. The large number of widows and orphans have a difficult time just trying to survive. Many are maimed from the constant wars. Bombs are not exactly what these people needs. And of course, the average citizen of Afghanistan had zero to do with the attacks in America.
There is no doubt that we will be taking President Bush to task for other matters in the future. But for now, he deserves full credit for handling this crisis as perfectly as possible.
Will Wonders Never Cease?Employee Advocate - http://dukeemployees.com - October 5, 2001
We have been amazed at how well President Bush has conducted the anti-terrorist effort. But we never expected him to offer help at home to anyone, other that to wealthy Americans.
The Associated Press has reported that the president has proposed $3 billion in emergency aid for American workers laid off after the attacks. He has even bucked his fellow Republicans on the issue!
We are truly living in interesting times.
We Support the President of the United StatesEmployee Advocate - http://dukeemployees.com - September 16, 2001
We have not been a cheering section for President Bush. In fact, this is the first time that we have recognized him as president. But after the recent terrorist attacks, he needs a free hand to operate and the full support of all Americans.
We fully support President Bush, Congress, and the U. S. military in whatever actions they deem prudent to take against the aggressors.
For citizens who want to help victims, the Red Cross and other agencies always need assistance. Attacking innocent people, solely because of their national origin, is not the way to help the situation.
SEC on Accounting FraudEmployee Advocate - http://dukeemployees.com - September 14, 2001
Shanon D. Murray (Daily Deal) interviewed the resigning head of the U.S. Securities and Exchange Commission's enforcement division, Richard H. Walker. Mr. Walker has led the attack to secure more criminal prosecutions against corporations that practice “earnings management abuses.”
“During his tenure, Walker snared major companies such as W.R. Grace & Co., Cendant Corp., Sunbeam Corp., Waste Management, drug wholesaler McKesson HBOC Inc., Livent and Microstrategy Inc. in the SEC's efforts to nail companies which cooked the books.”
Mr. Walker said: “As far as accounting investigations go, they usually involve historical violations. We often don't learn about accounting issues until years after the fact. Also it is very difficult to detect fraud on the face of a financial statement. In many instances we discover wrongdoing when a company announces that it has discovered some financial ‘irregularity’ and is undertaking an internal investigation.”
SEC Chairman Harvey Pitt made a promise of “real-time” enforcement. This would allow the corporation playing games with the books to reap their punishment faster.
Investors who are having problems with corporations or who wish to report fraud, are welcomed to access the SEC Complaint Center from the link below:
Bush 'Feels Your Pain'Duke Energy Employee Advocate - http://dukeemployees.com - September 10, 2001
G. W. Bush and Dick Cheney are concerned because of unemployment. They are concerned because it may negatively affect their political careers! Richard Stevenson (The New York Times) reports on Bush’s latest attempt to appear empathetic to the general population.
“His hastily arranged appearance outside the Oval Office this afternoon reflected growing concern among his aides and officials of his party that the deteriorating economic and budget outlook could dearly cost the White House and Congressional Republicans politically.”
Bush said. "Any American out of work is too many Americans out of work."
Really now? If that is the case, why is Bush talking of giving illegal aliens full citizenship and knocking down the borders for more to “migrate” into the United States?
What are Bush and Cheney going to do about unemployment? Why, follow their business as usual routine, of course. No matter what the problem is, Bush’s solution is to do what he had originally planned on doing anyway. He came into the White House with ever intention of implementing a tax cut that favored the truly wealthy. He is owned by the oil and energy corporations and is always looking for a way to scratch their backs.
A while back, when reporters asked him what he was going to do about high gasoline prices, he replied that he was pursuing the tax cut and drilling for oil in Alaska! Bush said that with the tax cut people could buy gas! Did anyone notice that this was his plan before the complaints of high gasoline prices?
Bush offered no solutions for high unemployment, other than, the tax cut and drilling for more oil! Bush is a one trick pony. And the one trick is not very good.
Truth and LiesThe New York Times - By PAUL KRUGMAN - August 28, 2001
Dishonesty in the pursuit of tax cuts is no vice. That, in the end, will be the only way to defend George W. Bush's deceptions.
Let's remember the way the debate ran during the spring. Back in May, The New Republic's cover showed a picture of Mr. Bush, with the headline "He's Lying." Inside were two articles about the tax cut. One, by Jonathan Chait, showed that -- contrary to administration claims -- the tax cut would mainly go to the richest few percent of the population. The other was an excerpt from my own book "Fuzzy Math," refuting the administration's claims that it could cut taxes, increase military spending, provide prescription drug coverage and still avoid dipping into the Social Security surplus.
The New Republic cover caused much tut-tutting; the magazine's editors were accused of hyperbole, of rabble-rousing. But the headline was a simple statement of fact. Mr. Bush was lying. It was obvious from the start that the administration's numbers didn't add up.
And in case you were wondering, the administration is still lying. I could explain at length how the Office of Management and Budget has cooked the books so that it can still claim a surplus outside of Social Security over the next two years. But here's an easy way to see that the numbers are bogus: O.M.B. claims that the budget will show a surplus of $1 billion this year, and another $1 billion next year. Ask yourself how likely it is that revenues and outlays in a $2 trillion budget would line up that exactly. Then ask yourself how likely it is that they would line up that exactly two years in a row. The O.M.B. numbers are the result of desperate backing and filling -- shift some revenue from this year to next year, then move some of it back, then change accounting rules that have been in place for 65 years, then bump up the estimate of economic growth -- all so that the administration can pretend that it is keeping its promise.
The Congressional Budget Office, which does honest work but under certain constraints -- more on that in a minute -- is supposed to release its own estimate today, but the main results have already been leaked. They show a deficit outside Social Security this year, a tiny surplus next year, then a return to deficit in 2003 and 2004. And these numbers, read properly, flatly refute two of the arguments you'll hear over the next few days.
First, the administration will tell you that the return to deficits is the result of the economic slowdown. Not so: the C.B.O., like the administration, assumes that the economy will recover next year, but projects that we will be in deficit through 2004. Why? Because the tax cut grows over time, and the revenue lost because of that growing tax cut is more than the revenue gained from economic recovery. Why has the prospect of surpluses been replaced by the prospect of deficits, even after the economy recovers? To coin a phrase: It's the tax cut, stupid.
Second, the administration will try to blame big spenders in Congress for the deficits. But who are these big spenders? The only major new spending items in the C.B.O. projection are for defense and education -- both in response to administration initiatives. And it's the administration, not the Democrats, that has described the defense increase as a mere "down payment" on much larger future sums.
Those future defense increases aren't in the C.B.O. projection, because the rules under which C.B.O. operates force it to project the budget as if current policy will remain unchanged. So the C.B.O. projection leaves out the budget-busters it knows are out there, such as Donald Rumsfeld's next installment and the cost of fixing the alternative minimum tax. Put those items in, and the picture is clear: the surplus is gone, and we won't see it again as long as the tax cut goes through as scheduled.
I'll turn in future columns to the reasons why this year's deficit is not a bad thing, but those future deficits -- which will be much larger than the C.B.O. projects -- are very bad things indeed.
But the important point for now involves honor and credibility. Mr. Bush promised not to dip into the Social Security surplus; he has broken that promise. Critics told you that would happen; they have been completely vindicated. Mr. Bush told you it wouldn't; he lied.