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Rules of the Road: Starr Power

BY Jaret Seiberg and Shanon D. Murray
by Jaret Seiberg and Shanon D. Murray on 1/9/01.

Former Whitewater independent counsel Kenneth W. Starr has joined the fight against the Federal Trade Commission's efforts to prevent H.J. Heinz Co. from acquiring Beech-Nut Nutrition Corp.

In briefs filed Dec. 29 with the U.S. Court of Appeals for the District of Columbia, Starr is listed as the lead lawyer for Beech-Nut and its Milnot Holding Corp. parent. He joins fellow Kirkland & Ellis partner Tefft W. Smith in arguing that a trial court was correct in ruling that the efficiencies of the merger of the two baby-food operations outweigh any anti-competitive harms.

Heinz and Beech-Nut got support in their appeal from Citizens for a Sound
Economy Foundation, which submitted a friend of the court brief filed by former judge Robert Bork, who like Starr, is a hero in the conservative legal community.

The foundation argued that the FTC should not be allowed to automatically block a merger from three competitors to two. It said such deals can be pro-competitive by creating a stronger rival to the dominant firm.

It also said the FTC is wrong to claim that the court should not consider efficiencies during a preliminary injunction because the agency would evaluate them during a full trial on the merits. Rather, the foundation argued, all these defenses should be considered during the injunction phase. Also coming to the aid of Heinz was a joint brief by the Grocery Manufacturers of America Inc., National Association of Manufacturers and the Manufacturers Alliance, which included contributions by George Washington University law professor William Kovacic.

The three groups argued that the merger guidelines adopted by FTC and the U.S. Department of Justice compel the agencies to credit efficiencies created by the deal when evaluating its competitive effects. "The court correctly viewed the efficiencies as a basis for predicting that the merger would yield no anti-competitive effects," the group wrote.

The case is scheduled for oral arguments next month.

The three House committees most important to the dealmaking community got new chairmen last week.

House Republican leaders selected Rep. Billy Tauzin as chairman of the Commerce Committee, a move that gives the Louisiana lawmaker a platform to pursue his calls for reform of the merger review process. The Commerce Committee oversees the FTC and Federal Communications Commission, as well as the energy sector.

On Monday, Jan. 8, Tauzin said he had appointed David Marvento as his staff director, which means he will be the chief legislative and political adviser to the chairman. Marvento is a former vice president and senior director of government affairs at the Securities Industry Association. Tauzin defeated a bid by Rep. Michael Oxley, Ohio, for the coveted Commerce post. Tauzin had more seniority than Oxley, but he earned much of that as a member of the Democratic caucus before switching to the GOP six years ago.

As a consolation, Republican leaders gave Oxley the chairmanship of the House Financial Services Committee, known in the last Congress as the banking committee. It now oversees the banking, securities and insurance industries. That came over the fierce objections of Rep. Marge Roukema, N.J., who as the most senior Republican on the panel was in line to become the first female House committee chairman.

The House Judiciary Committee -- which oversees antitrust issues -- was awarded to Rep. James Sensenbrenner of Wisconsin, who has little record on competition policy.

Albert Foer, president of the American Antitrust Institute, said House Judiciary is the wild card because it handles antitrust policy directly rather than relegating it to a subcommittee. The key will be to see who Sensenbrenner hires as his antitrust counsel, Foer said.

The Securities and Exchange Commission will vote today on the Nasdaq's proposed new trading system -- known as Supermontage -- that it says will improve trade executions.

The Nasdaq believes Supermontage will be a healthy step toward lessening market fragmentation, a concern of SEC Chairman Arthur Levitt.

The Nasdaq says Supermontage, which was originally proposed in October 1999, will lead to better execution quality for investors by providing improved access to automatic execution and other benefits.

"The clearest and most direct route for the SEC to take a significant step in the interest of investors would be to approve the Supermontage trading system," Nasdaq President Richard G. Ketchum said in a statement Monday.

Speculation is running rampant throughout the antitrust community about whom the Bush administration will appoint to the Department of Justice antitrust division and select as chairman of the Federal Trade Commission.

At the FTC, much may depend on Chairman Robert Pitofsky, whose term does not expire until the fall. If Pitofsky does not leave the commission in the next month or two and the president wants to put a Republican in charge of the agency, then Bush administration officials must select between current commissioners Thomas Leary and Orson Swindle. Pitofsky would revert to being a commissioner for the rest of his term.

How long he would stay, if replaced as chairman, could depend on the choice between Leary and Swindle. Despite his career in the private sector as an antitrust litigator, Leary has a reputation as a deep thinker on competition policy. Conventional wisdom holds Pitofsky would be more likely to stay through the summer if Leary gets the top job.

Swindle, however, is much less inclined to significant government intervention on business combination. He is considered more laissez-faire than Leary, and he has an ally in Senate Commerce Committee Chairman John McCain. Conventional wisdom holds that Pitofsky would likely leave by summer if Swindle gets the job.

The Justice Department job remains an open question. George Mason University professor Timothy Muris would be a shoo-in for the post if he wants it.

But the Bush adviser has previously indicated that he would prefer to work in the budget arena. The next tier of candidates includes a string of Washington lawyers, none of whom has emerged as a front-runner.