Anti-Trust Issues - What Keeps Your Lawyer Up at Night
By William A. Brewer III Managing Partner, Bickel & Brewer | January 14, 2010
Consolidation has been a growth strategy of the lodging industry for more than a decade and a half, and some analysts predict that mergers and acquisitions (M&A) will continue to make economic sense to industry executives for the foreseeable future. The question is: will continued consolidation make sense to the trustbusters, competitors or even business partners who may harbor an antitrust gripe?
The wave of M&A activity, fueled by record hotel profits, globalization and an influx of private equity money, is increasing the market power of the big industry players. Hotel giants have been accumulating multiple brands - either in multiple market sectors or in a single sector - and that trend is expected to continue. As a result, fewer competitors hold larger market shares with more control over the nature of competition in various market segments.
These industry trends can draw unwelcome attention from more than just the trustbusters. Competitors and business partners alike have significant incentives to engage in private antitrust litigation, and this only adds to the antitrust concerns that keep your lawyer up at night.
The Effect of Market Concentration
Federal antitrust enforcers are likely to view a merger or acquisition as creating or enhancing market power (or facilitating the exercise of such power) if the merger or acquisition significantly increases market concentration and results in a concentrated market. The federal Horizontal Merger Guidelines treat market concentration as a measure of the likely anticompetitive consequences of mergers and acquisitions. The Federal Trade Commission ("FTC") and the Department of Justice employ the Herfindahl-Hirschman Index ("HHI") to gauge the concentrating effect of M&A activity. The HHI is calculated by summing the squares of the individual market shares of all market participants, and the difference between the pre-merger HHI and post-merger HHI suggests the merger's likely effect on market concentration. An HHI level below 1000 creates a presumption that the market is un-concentrated, which is considered competitive. HHI levels between 1000 and 1800 indicate moderately concentrated markets, which may or may not raise competitive concerns. Markets with HHI levels over 1800 are highly concentrated and are more likely to pose competitive concerns.
Private Antitrust Litigation