Deck 2: The Regulatory Environment

Question 1

Insider trading involves buying or selling securities based on knowledge not available to the general public.

Answer 1

True

Question 2

The U.S.Securities Act of 1933 requires that all securities offered to the public must be registered with the government.

Answer 2

True

Question 3

Foreign competitors are not relevant to antitrust regulators when trying to determine if a merger of two domestic firms would create excessive pricing power.

Answer 3

False

Question 4

If an investor initiates a tender offer,it must make a 14(d)filing with the SEC.

Question 5

The primary reason the Sarbanes-Oxly Act of 2002 was passed was to eliminate insider trading.

Question 6

Antitrust laws exist to prevent individual corporations from assuming too much market power such that they can limit their output and raise prices without concern for how their competitors might react.

Question 7

Whenever an investor accumulates 5% or more of a public company's stock,it must make a so-called 13(d)filing with the SEC.

Question 8

If the regulatory authorities suspect that a potential transaction may be anti-competitive,they will file a lawsuit to prevent completion of the transaction.

Question 9

Negotiated agreements between the buyer and seller rarely have a provision enabling the parties to back out,if the proposed transaction is challenged by the FTC or SEC.

Question 10

A typical consent decree for firms involved in a merger requires the merging parties to divest overlapping businesses or to restrict anticompetitive practices.

Question 11

In the U.S.,the Sherman Act makes illegal all contracts,combinations and conspiracies,which "unreasonably" restrain trade.The Act applies to all transactions and businesses engaging in both interstate and intrastate trade.

Question 12

Unlike the Sherman Act,which contains criminal penalties,the Clayton Act is a civil statute and allows private parties injured by the antitrust violations to sue in federal court for a multiple of their actual damages.

Question 13

In the U.S.,the Federal Trade Commission has the exclusive right to approve mergers and acquisitions if they are determined to be potentially anti-competitive.

Question 14

The Williams Act of 1968 consists of a series of amendments to the Securities Act of 1933,and it is intended to protect target firm shareholders from lighting fast takeovers in which they would not have enough time to adequately assess the value of an acquirer's offer.

Question 15

Mergers and acquisitions are subject to federal regulation only.

Question 16

Under a consent decree,the regulatory authorities agree to approve a proposed transaction if the parties involved agree to take certain actions following closing.

Question 17

Federal antitrust laws exist to prevent individual corporations from assuming too much market power such that they can limit their output and raise prices without concern for any significant competitor reaction.

Question 18

Whenever an investor acquires 5% or more of public company,it must disclose its intentions,the identities of all investors,their occupation,sources of financing,and the purpose of the acquisition.

Question 19

Acquisitions involving companies of a certain size cannot be completed until certain information is supplied to the federal government and until a specific waiting period has elapsed.

Question 20

Whenever either the acquiring or the target firm's stock is publicly traded,the transaction is subject to the substantial reporting requirements of federal securities laws.

Question 21

Some state anti-takeover laws contain so-called "fair price provisions" requiring that all target shareholders of a successful tender offer receive the same price as those who actually tendered their shares.

Question 22

In addition to market share,antitrust regulators consider barriers to entry,the number of product substitutes,and the degree of product differentiation.

Question 23

Unlike the European Economic Union,a decision by U.S.antitrust regulators to block a transaction may be appealed in the courts.

Question 24

The primary shortcoming of industry concentration ratios is the frequent inability of antitrust regulators to define accurately what constitutes an industry,the failure to reflect ease of entry or exit,foreign competition,and the distribution of firm size.

Question 25

A heavily concentrated market is one in which a single or a few firms control a disproportionately large share of the total market.

Question 26

Employee benefit plans seldom create significant liabilities for buyers.

Question 27

Alliances and joint ventures are likely to receive more intensive scrutiny by regulators because of their tendency to be more anti-competitive than M&As.

Question 28

The U.S.antitrust regulators are likely to be most concerned about vertical mergers.

Question 29

There are no state statutes affecting proposed takeovers.

Question 30

Market share is usually easy to define.

Question 31

Under federal law,states have the right to sue to block mergers they believe are anti-competitive,even if the FTC or SEC does not challenge them.

Question 32

About 40% of all proposed M&A transactions are disallowed by the U.S.antitrust regulators,because they are believed to be anti-competitive.

Question 33

States are not allowed to pass any laws that impose restrictions on interstate commerce or that conflict in any way with federal laws regulating interstate commerce.

Question 34

Antitrust authorities may approve a proposed takeover even if the resulting combination will substantially increase market concentration if the target from would go bankrupt if the takeover does not occur.

Question 35

The market share of the combined firms is rarely an important factor in determining whether a proposed transaction is likely to be considered anti-competitive.

Question 36

State antitrust laws are usually quite similar to federal laws.

Question 37

Federal securities and antitrust laws are the only laws affecting corporate takeovers.Other laws usually have little impact.

Question 38

U.S.antitrust regulators in determining if a proposed business combination is likely to be anti-competitive consider only domestic competitors or foreign competitors with domestic operations.

Question 39

Antitrust regulators rarely consider the impact of a proposed takeover on product and technical innovation.

Question 40

U.S.antitrust regulators may approve a horizontal transaction even if it results in the combined firms having substantial market share if it can be shown that significant cost efficiencies would result.

Question 41

The requirements to be listed on most major public exchanges far exceed the auditor independence requirements of the Sarbanes-Oxley Act.

Question 42

Antitakeover laws do not exist at the state level.

Question 43

The Sherman Act makes illegal all contracts,combinations,and conspiracies that "unreasonably" restrain trade.

Question 44

Antitrust regulators take into account the likelihood that a firm would fail and exit a market if it is not allowed to merger with another firm.

Question 45

The purpose of the 1968 Williams Act was to

A) Give target firm shareholders time to review takeover proposals
B) Prosecute target firm shareholders who misuse information
C) Protect target firm employees from layoffs
D) Prevent tender offers
E) Promote tender offers

Question 46

The Securities Act of 1933 requires the registration of all securities issued to the public.Such registration requires which of the following disclosures:

A) Description of the firm's properties and business
B) Description of the securities
C) Information about management
D) Financial statements audited by public accountants
E) All of the above.

Question 47

All of the following are true of the Williams Act except for

A) Consists of a series of amendments to the 1934 Securities Exchange Act
B) Facilitates rapid takeovers over target companies
C) Requires investors acquiring 5% or more of a public company to file a 13(d) with the SEC
D) Firms undertaking tender offers are required to file a 14(d)-1 with the SEC
E) Acquiring firms initiating tender offers must disclose their intentions and business plans

Question 48

Horizontal mergers are rarely rejected by antitrust regulators.

Question 49

In a tender offer,which of the following is true?

A) Both acquiring and target firms are required to disclose their intentions to the SEC
B) The target's management cannot advise its shareholders how to respond to a tender offer until has disclosed certain information to the SEC
C) Information must be disclosed only to the SEC and not to the exchanges on which the target's shares are traded
D) A and B
E) A, B, and C

Question 50

Which of the following are true about the Sherman Antitrust Act?

A) Prohibits business combinations that result in monopolies.
B) Prohibits business combinations resulting in a significant increase in the pricing power of a single firm.
C) Makes illegal all contracts unreasonably restraining trade.
D) A and C only
E) A, B, and C

Question 51

All of the following are true of the Hart-Scott-Rodino Antitrust Improvements Act except for

A) Acquisitions involving firms of a certain size cannot be completed until certain information is supplied to the FTC
B) Only the acquiring firm is required to file with the FTC
C) An acquiring firm may agree to divest certain businesses following the completion of a transaction in order to get regulatory approval.
D) The Act is intended to give regulators time to determine whether the proposed combination is anti-competitive.
E) The FTC may file a lawsuit to block a proposed transaction

Question 52

All of the following is true about proxy contests except for

A) Proxy materials must be filed with the SEC immediately following their distribution to investors
B) The names and interests of all parties to the proxy contest must be disclosed in the proxy materials
C) Proxy materials may be distributed by firms seeking to change the composition of a target firm's board of directors
D) Proxy materials may be distributed by the target firm seeking to influence how their shareholders vote on a particular proposal
E) Target firm proxy materials must be filed with the SEC.

Question 53

Transactions involving firms in different countries are complicated by having to deal with multiple regulatory jurisdictions in specific countries or regions.

Question 54

In determining whether a proposed transaction is anti-competitive,U.S.regulators look at all of the following except for

A) Market share of the combined businesses
B) Potential for price fixing
C) Ease of new competitors to enter the market
D) Potential for job loss among target firm's employees
E) The potential for the target firm to fail without the takeover

Question 55

Which of the following represent important shortcomings of using industry concentration ratios to determine whether the combination of certain firms will result in an increase in market power?

A) Frequent inability to define what constitutes an industry
B) Failure to measure ease of entry or exit for other firms
C) Failure to account for foreign competition
D) Failure to account properly for the distribution of firms of different sizes
E) All of the above

Question 56

U.S.and European Union antitrust law are virtually identical.

Question 57

The Herfindahl-Hirschman Index is a measure of industry concentration used by U.S.antitrust regulators in determining whether to accept or reject a proposed merger.

Question 58

Efficiencies rarely are considered by antitrust regulators in determining whether to accept or reject a proposed merger.

Question 59

All of the following are true of antitrust lawsuits except for

A) The FTC files lawsuits in most cases they review.
B) The FTC reviews complaints that have been recommended by its staff and approved by the FTC
C) FTC guidelines commit the FTC to make a final decision within 13 months of a complaint
D) As an alternative to litigation, a company may seek to negotiate a voluntary settlement of its differences with the FTC.
E) FTC decisions can be appealed in the federal circuit courts.

Question 60

Which of the following is among the least regulated industries in the U.S.?

A) Defenses
B) Communications
C) Retailing
D) Public utilities
E) Banking

Question 61

The Sarbanes-Oxley bill is intended to achieve which of the following:

A) Auditor independence
B) Corporate responsibility
C) Improved financial disclosure
D) Increased penalties for fraudulent behavior
E) All of the above

Question 62

Case Study Short Essay Examination Questions
Justice Department Requires VeriFone Systems to Sell Assets
before Approving Hypercom Acquisition
Key Points:
•Asset sales commonly are used by regulators to thwart the potential build-up of market power resulting from a merger or acquisition.
•In such situations, defining the appropriate market served by the merged firms is crucial to identifying current and potential competitors.
______________________________________________________________________________
In late 2011, VeriFone Systems (VeriFone) reached a settlement with the U.S. Justice Department to acquire competitor Hypercom Corp on the condition it sold Hypercom's U.S. point-of-sale terminal business. Business use point-of-sale terminals are used by retailers to accept electronic payments such as credit and debit cards.
The Justice Department had sued to block the $485 million deal on concerns that the combination would limit competition in the market for retail checkout terminals. The asset sale is intended to create a significant independent competitor in the U.S. The agreement stipulates that private equity firm Gores Group LLC will buy the terminals business.
San Jose, California-based VeriFone is the second largest maker of electronic payment equipment in the U.S. and Hypercom, based in Scottsdale, Arizona, is number three. Together, the firms control more than 60 percent of the U.S. market for terminals used by retailers. Ingenico SA, based in France, is the largest maker of card-payment terminals. The Justice Department had blocked a previous attempt to sell Hypercom's U.S. point-of-sale business to rival Ingenico, saying that it would have increased concentration and undermined competition.
VeriFone will retain Hypercom's point-of-sale equipment business outside the U.S. The acquisition will enable VeriFone to expand in the emerging market for payments made via mobile phones by giving it a larger international presence in retail stores and the opportunity to install more terminals capable of accepting mobile phone payments abroad.
What alternative actions could the government take to limit market power resulting from a business combination?

Question 63

State "blue sky" laws are designed to

A) Allow states to block M&As deemed as anticompetitive
B) Protect individual investors from investing in fraudulent securities' offerings
C) Restrict foreign investment in individual states
D) Protect workers' pensions
E) Prevent premature announcement of M&As

Question 64

Case Study Short Essay Examination Questions
Overcoming Regulatory Hurdles: Exelon Buys Constellation Energy
Key Points:
•Rising costs associated with more stringent environmental laws and the need to upgrade power grids are spurring consolidation in the fragmented U.S. electric utility industry.
•However, acquiring utilities often is particularly challenging due to the complex regulatory approval process.
______________________________________________________________________________
Reflecting increased demands for clean power, an aging electric power grid and other infrastructure, and the rising cost of fuels to generate power, the highly fragmented U.S. electric utility industry has undergone significant consolidation in recent years. By achieving increased scale, electric utilities are hoping to lower operating costs and gain the financial strength to finance the necessary investments in infrastructure and alternative energy sources. Utilities also are increasingly confronted by a combination of regulated and non-regulated electricity markets.
In most retail electricity markets in which electricity is sold directly to the end customer, rates that can be charged are regulated by local public utility commissions. While some utilities own their own generating capacity, others are dependent to varying degrees on purchasing electric power in the wholesale power market. A wholesale electricity market exists when competing HYPERLINK "http://en.wikipedia.org/wiki/Electricity_generation" \o "Electricity generation" generators offer their electricity output to HYPERLINK "http://en.wikipedia.org/wiki/Electricity_retailing" \o "Electricity retailing" retailers. Increasingly, large end-users can bypass retail electric utility companies to buy directly from wholesale power generators in a bid to access lower cost power by eliminating the middleman. Some states allow competition in their electricity markets while others do not. In competitive markets, power suppliers, including renewable and conventional oil and gas power generators, compete against each other to provide the best possible service at the lowest cost in order to attract and retain customers. In contrast, in monopoly-regulated states, power providers have no incentive to innovate or lower costs because ratepayers are captive to their monopoly-protected supplier.
Some utilities are attempting to shift to a mix of regulated and non-regulated electricity markets. The latest illustration of this strategy is Exelon Corp's acquisition of Constellation Energy for $7.9 billion in April 2011. The deal creates the largest electric utility and power generator in the U.S. The combined firm will gain stakes in five nuclear reactors and become the largest U.S. electricity marketer. Exelon is currently the largest owner and operator of U.S. nuclear plants and owns electric utilities Commonwealth Edison in Chicago and Peco Energy in Pennsylvania. Constellation owns the utility Baltimore Gas & Electric. Most of its revenue comes from the retail sale of electricity in states that allow competition. The merger creates the number one competitive energy provider with one of the industry's cleanest and lowest cost power generation plant systems in the country.
The combined company will keep the Exelon name and its headquarters in Chicago, as well as own more than 34 gigawatts of power generation. The company's power generation mix would be 55 percent nuclear, 24 percent natural gas, 6 percent hydro and renewable, and 7 percent oil, and 6 percent coal. Exelon will add 1.2 million electric customers in Constellation service areas.
This deal is Exelon's largest transaction. Exelon has tried unsuccessfully three times to buy other electric power companies since 2003. Exelon was thwarted by regulators in efforts to buy independent power producer NRG Energy in 2009, Public Service Enterprise Group in 2006, and Illinois Power in 2003. Constellation has been the target of two failed bids by other suitors. A $14.8 billion sale of Constellation to NextEra Energy Inc., the largest U.S. wind-power generator and owner of Florida's largest utility, collapsed in 2005.
Exelon announced on December 20, 2011 that it had received approval by the U.S. Justice Department to buy Constellation Energy Group Inc. The approval was contingent on Exelon selling three electricity generating plants in Maryland. The sale of the three power plants in the Baltimore area will significantly reduce the combined firm's market share in that region. The Justice Department believed that the combination, as originally proposed, would have lessened competition in the wholesale electricity market and increased prices for consumers in the Mid-Atlantic states (i.e., New York, Pennsylvania, and Maryland). Exelon and Constellation have also received regulatory approval from the Maryland and New York regulators as well as the Nuclear Regulatory Commission.
:
What factors other than market share should be considered in determining whether a potential merger might result in an increased pricing power? Of these factors,which do you believe represent the most important justifications for the merger of Exelon and Constellation?

Question 65

Vertical mergers are likely to be challenged by antitrust regulators for all of the following reasons except for

A) An acquisition by a supplier of a customer prevents the supplier's competitors from having access to the customer.
B) The relevant market has few customers and is highly concentrated
C) The relevant market has many suppliers.
D) The acquisition by a customer of a supplier could become a concern if it prevents the customer's competitors from having access to the supplier.
E) The suppliers' products are critical to a competitor's operations

Question 66

Foreign direct investment in U.S.companies that may threaten national security is regulated by which of the following:

A) Hart-Scott-Rodino Antitrust Improvements Act
B) Defense Production Act
C) Sherman Act
D) Federal Trade Commission Act
E) Clayton Act

Question 67

Case Study Short Essay Examination Questions
Overcoming Regulatory Hurdles: Exelon Buys Constellation Energy
Key Points:
•Rising costs associated with more stringent environmental laws and the need to upgrade power grids are spurring consolidation in the fragmented U.S. electric utility industry.
•However, acquiring utilities often is particularly challenging due to the complex regulatory approval process.
______________________________________________________________________________
Reflecting increased demands for clean power, an aging electric power grid and other infrastructure, and the rising cost of fuels to generate power, the highly fragmented U.S. electric utility industry has undergone significant consolidation in recent years. By achieving increased scale, electric utilities are hoping to lower operating costs and gain the financial strength to finance the necessary investments in infrastructure and alternative energy sources. Utilities also are increasingly confronted by a combination of regulated and non-regulated electricity markets.
In most retail electricity markets in which electricity is sold directly to the end customer, rates that can be charged are regulated by local public utility commissions. While some utilities own their own generating capacity, others are dependent to varying degrees on purchasing electric power in the wholesale power market. A wholesale electricity market exists when competing HYPERLINK "http://en.wikipedia.org/wiki/Electricity_generation" \o "Electricity generation" generators offer their electricity output to HYPERLINK "http://en.wikipedia.org/wiki/Electricity_retailing" \o "Electricity retailing" retailers. Increasingly, large end-users can bypass retail electric utility companies to buy directly from wholesale power generators in a bid to access lower cost power by eliminating the middleman. Some states allow competition in their electricity markets while others do not. In competitive markets, power suppliers, including renewable and conventional oil and gas power generators, compete against each other to provide the best possible service at the lowest cost in order to attract and retain customers. In contrast, in monopoly-regulated states, power providers have no incentive to innovate or lower costs because ratepayers are captive to their monopoly-protected supplier.
Some utilities are attempting to shift to a mix of regulated and non-regulated electricity markets. The latest illustration of this strategy is Exelon Corp's acquisition of Constellation Energy for $7.9 billion in April 2011. The deal creates the largest electric utility and power generator in the U.S. The combined firm will gain stakes in five nuclear reactors and become the largest U.S. electricity marketer. Exelon is currently the largest owner and operator of U.S. nuclear plants and owns electric utilities Commonwealth Edison in Chicago and Peco Energy in Pennsylvania. Constellation owns the utility Baltimore Gas & Electric. Most of its revenue comes from the retail sale of electricity in states that allow competition. The merger creates the number one competitive energy provider with one of the industry's cleanest and lowest cost power generation plant systems in the country.
The combined company will keep the Exelon name and its headquarters in Chicago, as well as own more than 34 gigawatts of power generation. The company's power generation mix would be 55 percent nuclear, 24 percent natural gas, 6 percent hydro and renewable, and 7 percent oil, and 6 percent coal. Exelon will add 1.2 million electric customers in Constellation service areas.
This deal is Exelon's largest transaction. Exelon has tried unsuccessfully three times to buy other electric power companies since 2003. Exelon was thwarted by regulators in efforts to buy independent power producer NRG Energy in 2009, Public Service Enterprise Group in 2006, and Illinois Power in 2003. Constellation has been the target of two failed bids by other suitors. A $14.8 billion sale of Constellation to NextEra Energy Inc., the largest U.S. wind-power generator and owner of Florida's largest utility, collapsed in 2005.
Exelon announced on December 20, 2011 that it had received approval by the U.S. Justice Department to buy Constellation Energy Group Inc. The approval was contingent on Exelon selling three electricity generating plants in Maryland. The sale of the three power plants in the Baltimore area will significantly reduce the combined firm's market share in that region. The Justice Department believed that the combination, as originally proposed, would have lessened competition in the wholesale electricity market and increased prices for consumers in the Mid-Atlantic states (i.e., New York, Pennsylvania, and Maryland). Exelon and Constellation have also received regulatory approval from the Maryland and New York regulators as well as the Nuclear Regulatory Commission.
:
How does the FTC define market share? In the electric utility market,to what extent does this methodology apply? To what extent does it not apply?

Question 68

All of the following are true about a consent decree except for

A) Requires the merging parties to divest overlapping businesses
B) An acquirer may seek to negotiate a consent decree in advance of consummating a deal.
C) In the absent of a consent decree, a buyer usually makes the receipt of regulatory approval necessary to closing the deal.
D) FTC studies indicate that consent decrees have historically been largely ineffectual in promoting competition
E) Consent decrees tend to be most effective in promoting competition if the divestitures made by the acquiring firms are to competitors.

Question 69

All of the following are true of the U.S.Foreign Corrupt Practices Act except for which of the following:

A) The U.S. law carries anti-bribery limitations beyond U.S. political boundaries to within the domestic boundaries of foreign states.
B) This Act prohibits individuals, firms, and foreign subsidiaries of U.S. firms from paying anything of value to foreign government officials in exchange for obtaining new business or retaining existing contracts.
C) The Act permits so-called facilitation payments to foreign government officials if relatively small amounts of money are required to expedite goods through foreign custom inspections, gain approvals for exports, obtain speedy passport approvals, and related considerations.
D) The payments described in c above are considered legal according to U.S. law and the laws of countries in which such payments are considered routine
E) Bribery is necessary if a U.S. company is to win a contract that comprises more than 10% of its annual sales.

Question 70

All of the following factors are considered by U.S.antitrust regulators except for

A) Market share
B) Potential adverse competitive effects
C) Barriers to entry
D) Purchase price paid for the target firm
E) Efficiencies created by the combination

Question 71

Which of the following are used by antitrust regulators to determine whether a proposed transaction will be anti-competitive?

A) Market share
B) Barriers to entry
C) Number of substitute products
D) A and B only
E) A, B, and C

Question 72

Case Study Short Essay Examination Questions
Overcoming Regulatory Hurdles: Exelon Buys Constellation Energy
Key Points:
•Rising costs associated with more stringent environmental laws and the need to upgrade power grids are spurring consolidation in the fragmented U.S. electric utility industry.
•However, acquiring utilities often is particularly challenging due to the complex regulatory approval process.
______________________________________________________________________________
Reflecting increased demands for clean power, an aging electric power grid and other infrastructure, and the rising cost of fuels to generate power, the highly fragmented U.S. electric utility industry has undergone significant consolidation in recent years. By achieving increased scale, electric utilities are hoping to lower operating costs and gain the financial strength to finance the necessary investments in infrastructure and alternative energy sources. Utilities also are increasingly confronted by a combination of regulated and non-regulated electricity markets.
In most retail electricity markets in which electricity is sold directly to the end customer, rates that can be charged are regulated by local public utility commissions. While some utilities own their own generating capacity, others are dependent to varying degrees on purchasing electric power in the wholesale power market. A wholesale electricity market exists when competing HYPERLINK "http://en.wikipedia.org/wiki/Electricity_generation" \o "Electricity generation" generators offer their electricity output to HYPERLINK "http://en.wikipedia.org/wiki/Electricity_retailing" \o "Electricity retailing" retailers. Increasingly, large end-users can bypass retail electric utility companies to buy directly from wholesale power generators in a bid to access lower cost power by eliminating the middleman. Some states allow competition in their electricity markets while others do not. In competitive markets, power suppliers, including renewable and conventional oil and gas power generators, compete against each other to provide the best possible service at the lowest cost in order to attract and retain customers. In contrast, in monopoly-regulated states, power providers have no incentive to innovate or lower costs because ratepayers are captive to their monopoly-protected supplier.
Some utilities are attempting to shift to a mix of regulated and non-regulated electricity markets. The latest illustration of this strategy is Exelon Corp's acquisition of Constellation Energy for $7.9 billion in April 2011. The deal creates the largest electric utility and power generator in the U.S. The combined firm will gain stakes in five nuclear reactors and become the largest U.S. electricity marketer. Exelon is currently the largest owner and operator of U.S. nuclear plants and owns electric utilities Commonwealth Edison in Chicago and Peco Energy in Pennsylvania. Constellation owns the utility Baltimore Gas & Electric. Most of its revenue comes from the retail sale of electricity in states that allow competition. The merger creates the number one competitive energy provider with one of the industry's cleanest and lowest cost power generation plant systems in the country.
The combined company will keep the Exelon name and its headquarters in Chicago, as well as own more than 34 gigawatts of power generation. The company's power generation mix would be 55 percent nuclear, 24 percent natural gas, 6 percent hydro and renewable, and 7 percent oil, and 6 percent coal. Exelon will add 1.2 million electric customers in Constellation service areas.
This deal is Exelon's largest transaction. Exelon has tried unsuccessfully three times to buy other electric power companies since 2003. Exelon was thwarted by regulators in efforts to buy independent power producer NRG Energy in 2009, Public Service Enterprise Group in 2006, and Illinois Power in 2003. Constellation has been the target of two failed bids by other suitors. A $14.8 billion sale of Constellation to NextEra Energy Inc., the largest U.S. wind-power generator and owner of Florida's largest utility, collapsed in 2005.
Exelon announced on December 20, 2011 that it had received approval by the U.S. Justice Department to buy Constellation Energy Group Inc. The approval was contingent on Exelon selling three electricity generating plants in Maryland. The sale of the three power plants in the Baltimore area will significantly reduce the combined firm's market share in that region. The Justice Department believed that the combination, as originally proposed, would have lessened competition in the wholesale electricity market and increased prices for consumers in the Mid-Atlantic states (i.e., New York, Pennsylvania, and Maryland). Exelon and Constellation have also received regulatory approval from the Maryland and New York regulators as well as the Nuclear Regulatory Commission.
:
What is anti-trust policy and why is it important? Why might its application be particularly important in the utility industry?

Question 73

Which other types of legislation can have a significant impact on a proposed transaction?

A) State anti-takeover laws
B) State antitrust laws
C) Federal benefits laws
D) Federal and state environmental laws
E) All of the above

Question 74

A collaborative arrangement is a term used by regulators to describe agreements among competitors for all of the following except for

A) Joint ventures
B) Strategic alliances
C) Mergers and acquisitions
D) A & B only
E) A & C only

Question 75

A diligent buyer must ensure that the target is in compliance with the labyrinth of labor and benefit laws,including those covering all of the following except for

A) Sexual harassment
B) Age discrimination,
C) National security
D) Drug testing
E) Wage and hour laws.

Question 76

All of the following are examples of antitakeover provisions commonly found in state statutes except for

A) Fair price provisions
B) Business combination provisions
C) Cash-out provisions
D) Short-form merger provisions
E) Share control provisions

Question 77

Case Study Short Essay Examination Questions
The Legacy of GE's Aborted Attempt to Merge with Honeywell
Many observers anticipated significant regulatory review because of the size of the transaction and the increase in concentration it would create in the markets served by the two firms. Most believed, however, that, after making some concessions to regulatory authorities, the transaction would be approved, due to its perceived benefits. Although the pundits were indeed correct in noting that it would receive close scrutiny, they were completely caught off guard by divergent approaches taken by the U.S. and EU antitrust authorities. U.S regulators ruled that the merger should be approved because of its potential benefits to customers. In marked contrast, EU regulators ruled against the transaction based on its perceived negative impact on competitors.
Honeywell's avionics and engines unit would add significant strength to GE's jet engine business. The deal would add about 10 cents to GE's 2001 earnings and could eventually result in $1.5 billion in annual cost savings. The purchase also would enable GE to continue its shift away from manufacturing and into services, which already constituted 70 percent of its revenues in 2000. The best fit is clearly in the combination of the two firms' aerospace businesses. Revenues from these two businesses alone would total $22 billion, combining Honeywell's strength in jet engines and cockpit avionics with GE's substantial business in larger jet engines. As the largest supplier in the aerospace industry, GE could offer airplane manufacturers "one-stop shopping" for everything from engines to complex software systems by cross-selling each other's products to their biggest customers.
^{BusinessWeek, 2000b}
Honeywell had been on the block for a number of months before the deal was consummated with GE. Its merger with Allied Signal had not been going well and contributed to deteriorating earnings and a much lower stock price. Honeywell's shares had declined in price by more than 40 percent since its acquisition of Allied Signal. While the euphoria surrounding the deal in late 2000 lingered into the early months of 2001, rumblings from the European regulators began to create an uneasy feeling among GE's and Honeywell's management.
Mario Monti, the European competition commissioner at that time, expressed concern about possible "conglomerate effects" or the total influence a combined GE and Honeywell would wield in the aircraft industry. He was referring to GE's perceived ability to expand its influence in the aerospace industry through service initiatives. GE's services offerings help differentiate it from others at a time when the prices of many industrial parts are under pressure from increased competition, including low-cost manufacturers overseas. In a world in which manufactured products are becoming increasingly commodity-like, the true winners are those able to differentiate their product offering. GE and Honeywell's European competitors complained to the EU regulatory commission that GE's extensive services offering would give it entrée into many more points of contact among airplane manufacturers, from communications systems to the expanded line of spare parts GE would be able to supply. This so-called range effect or portfolio power is a relatively new legal doctrine that has not been tested in transactions of this size.
^{Murray, 2001}
On May 3, 2001, the U.S. Department of Justice approved the buyout after the companies agreed to sell Honeywell's helicopter engine unit and take other steps to protect competition. The U.S. regulatory authorities believed that the combined companies could sell more products to more customers and therefore could realize improved efficiencies, although it would not hold a dominant market share in any particular market. Thus, customers would benefit from GE's greater range of products and possibly lower prices, but they still could shop elsewhere if they chose. The U.S. regulators expressed little concern that bundling of products and services could hurt customers, since buyers can choose from among a relative handful of viable suppliers.
To understand the European position, it is necessary to comprehend the nature of competition in the European Union. France, Germany, and Spain spent billions subsidizing their aerospace industry over the years. The GE-Honeywell deal has been attacked by their European rivals from Rolls-Royce and Lufthansa to French avionics manufacturer Thales. Although the European Union imported much of its antitrust law from the United States, the antitrust law doctrine evolved in fundamentally different ways. In Europe, the main goal of antitrust law is to guarantee that all companies be able to compete on an equal playing field. The implication is that the European Union is just as concerned about how a transaction affects rivals as it is consumers. Complaints from competitors are taken more seriously in Europe, whereas in the United States it is the impact on consumers that constitutes the litmus test. Europeans accepted the legal concept of "portfolio power," which argues that a firm may achieve an unfair advantage over its competitors by bundling goods and services. Also, in Europe, the European Commission's Merger Task Force can prevent a merger without taking a company to court.
The EU authorities continued to balk at approving the transaction without major concessions from the participants-concessions that GE believed would render the deal unattractive. On June 15, 2001, GE submitted its final offer to the EU regulators in a last-ditch attempt to breathe life into the moribund deal. GE knew that if it walked away, it could continue as it had before the deal was struck, secure in the knowledge that its current portfolio of businesses offered substantial revenue growth or profit potential. Honeywell clearly would fuel such growth, but it made sense to GE's management and shareholders only if it would be allowed to realize potential synergies between the GE and Honeywell businesses.
GE said it was willing to divest Honeywell units with annual revenue of $2.2 billion, including regional jet engines, air-turbine starters, and other aerospace products. Anything more would jeopardize the rationale for the deal. Specifically, GE was unwilling to agree not to bundle (i.e., sell a package of components and services at a single price) its products and services when selling to customers. Another stumbling block was the GE Capital Aviation Services unit, the airplane-financing arm of GE Capital. The EU Competition Commission argued that that this unit would use its influence as one of the world's largest purchasers of airplanes to pressure airplane manufacturers into using GE products. The commission seemed to ignore that GE had only an 8 percent share of the global airplane leasing market and would therefore seemingly lack the market power the commission believed it could exert.
On July 4, 2001, the European Union vetoed the GE purchase of Honeywell, marking it the first time a proposed merger between two U.S. companies has been blocked solely by European regulators. Having received U.S. regulatory approval, GE could ignore the EU decision and proceed with the merger as long as it would be willing to forego sales in Europe. GE decided not to appeal the decision to the EU Court of First Instance (the second highest court in the European Union), knowing that it could take years to resolve the decision, and withdrew its offer to merge with Honeywell.
On December 15, 2005, a European court upheld the European regulator's decision to block the transaction, although the ruling partly vindicated GE's position. The European Court of First Instance said regulators were in error in assuming without sufficient evidence that a combined GE-Honeywell could crush competition in several markets. However, the court demonstrated that regulators would have to provide data to support either their approval or rejection of mergers by ruling on July 18, 2006, that regulators erred in approving the combination of Sony BMG in 2004. In this instance, regulators failed to provide sufficient data to document their decision. These decisions affirm that the European Union needs strong economic justification to overrule cross-border deals. GE and Honeywell, in filing the suit, said that their appeal had been made to clarify European rules with an eye toward future deals, since they had no desire to resurrect the deal.
In the wake of these court rulings and in an effort to avoid similar situations in other geographic regions, coordination among antitrust regulatory authorities in different countries has improved. For example, in mid-2010, the U.S. Federal Trade Commission reached a consent decree with scientific instrument manufacturer Agilent in approving its acquisition of Varian, in which Agilent agreed to divest certain overlapping product lines. While both firms were based in California, each has extensive foreign operations, which necessitated gaining the approval of multiple regulators. Throughout the investigation, FTC staff coordinated enforcement efforts with the staffs of regulators in the European Union, Australia, and Japan. The cooperation was conducted under the auspices of certain bilateral cooperation agreements, the OECD Recommendation on Cooperation among its members, and the European Union Best Practices on Cooperation in Merger Investigation protocol.
Discussion Questions
What are the important philosophical differences between U.S.and EU antitrust regulators?
Explain the logic underlying these differences? To what extent are these differences influenced by
political rather than economic considerations? Explain your answer.

Question 78

U.S.antitrust regulators are most concerned about what types of transaction?

A) Vertical mergers
B) Horizontal mergers
C) Alliances
D) Joint ventures
E) Minority investments

Question 79

European antitrust policies differ from those in the U.S.in what important way?

A) They focus on the impact on competitors
B) They focus on the impact on consumers
C) They focus on both consumers and competitors
D) They focus on suppliers
E) They focus on consumers, suppliers, and competitors

Question 80

Case Study Short Essay Examination Questions
Justice Department Requires VeriFone Systems to Sell Assets
before Approving Hypercom Acquisition
Key Points:
•Asset sales commonly are used by regulators to thwart the potential build-up of market power resulting from a merger or acquisition.
•In such situations, defining the appropriate market served by the merged firms is crucial to identifying current and potential competitors.
______________________________________________________________________________
In late 2011, VeriFone Systems (VeriFone) reached a settlement with the U.S. Justice Department to acquire competitor Hypercom Corp on the condition it sold Hypercom's U.S. point-of-sale terminal business. Business use point-of-sale terminals are used by retailers to accept electronic payments such as credit and debit cards.
The Justice Department had sued to block the $485 million deal on concerns that the combination would limit competition in the market for retail checkout terminals. The asset sale is intended to create a significant independent competitor in the U.S. The agreement stipulates that private equity firm Gores Group LLC will buy the terminals business.
San Jose, California-based VeriFone is the second largest maker of electronic payment equipment in the U.S. and Hypercom, based in Scottsdale, Arizona, is number three. Together, the firms control more than 60 percent of the U.S. market for terminals used by retailers. Ingenico SA, based in France, is the largest maker of card-payment terminals. The Justice Department had blocked a previous attempt to sell Hypercom's U.S. point-of-sale business to rival Ingenico, saying that it would have increased concentration and undermined competition.
VeriFone will retain Hypercom's point-of-sale equipment business outside the U.S. The acquisition will enable VeriFone to expand in the emerging market for payments made via mobile phones by giving it a larger international presence in retail stores and the opportunity to install more terminals capable of accepting mobile phone payments abroad.
Do you believe requiring consent decrees that oblige the acquiring firm to dispose of certain target company assets is an abuse of government power? Why or why not?