Dr. James Langenfeld
          The Merger Wave & Antitrust Breakwaters

Ali E. Wambold
          Opening Remarks at a Public Hearing of the International Competition Policy Advisory
          Committee on November 3, 1998

Gabriel Castañeda
          Merger Control of Multijurisdictional Transactions
          Towards Compatibility

Barry E. Hawk
          Reforming Merger Control to Reduce Transaction Costs

Michael Reynolds
          Information Sharing and Procedural Harmonisation
          EU and US Merger Control Procedure and Cooperation

Michael H. Byowitz and Ilene Knable Gotts
          Rationalizing International Pre-Merger Review

Ilene Knable Gotts
          International Pre-Merger Notification Requirements

Calvin S. Goldman, Q.C. and Brian A. Facey
          Multijurisdictional Merger Review: Information Sharing and Procedural Harmonization

William J. Kolasky and Leon B. Greenfield
          Merger Review in the EU and US: Substantive Convergence and Procedural Dissonance,
          Global Competition Review, Oct./Nov. 1998

William J. Kolasky Jr. and William F. Adkinson Jr.
          Report Your Deal to FTC, DOJ, EC, Etc.
          Legal Times, Nov. 2, 1998

William J. Kolasky, Jr. & James W. Lowe
          The Merger Review Process at the Federal Trade Commission:
          Administrative Efficiency and the Rule of Law,
          49 Admin. L. Rev. 889 (Fall 1997)

          And as you recall from yesterday, we had the participation of everyone. We had the opportunity to hear those prepared remarks made by panelists who had been invited to attend, and then we were able to open it up and get a good exchange, and I am sure that we'll be able to do as thorough a job as we did yesterday. Steve, thank you. I know it was tough for you to get down from New York City, but we appreciate your attendance, as well as so many others who have come both from New York, from Chicago, Jim, and from around the world. Steve?

          MR. RATTNER: Thanks, Paula, and apologies again for our tardiness but I think you had a full day yesterday on many of the legal and particularly international aspects of antitrust regulation enforcement. And what we thought we would do on this panel is address the business and economic perspectives relating to the current merger wave and we have three panelists who are all active in that area.

          As you all know, we are, or at least have been until recently, in a period of unprecedented merger activity, and although the last couple of months has been a little slower than the preceding six or eight and the preceding several years, for that matter, there has been a recent pickup in activity and certainly the issues that are before this Committee that were discussed yesterday, the Committee has been discussing and are still very much in the forefront of what's going on in the commercial world, as well as in the legal world.

          So what we thought we would do is begin with some opening statements by our three panelists, who I'll introduce before each of them speak, and then as Paula said, hopefully we'll have a lively discussion and questions from the rest of us and from each of the panelists as well.

          So let me start, if I could, with Steve Wolitzer, who is managing director of Lehman Brothers and is global head of their Mergers and Acquisitions Department, who serves on a number of the firm's important committees. Steve has been at Lehman Brothers for quite a long time. He joined Kuhn Loeb, which was the predecessor firm, in 1977, and was appointed as co-head of the global mergers group in 1989. He has worked on many of Lehman's very important clients and important recent transactions including MCI/WorldCom, Digital Equipment/Compaq, Fujitsu/Amdahl, KLA/Tencor, Washington Mutual/Great Western, and so on. Steve graduated summa cum laude from New York University in 1973, he has an MBA from Harvard, and is also a CPA and was associated previously with Arthur Andersen. So Steve, if we could ask you to begin, we appreciate it.

          MR. WOLITZER: Good morning, thank you, Steve, and I appreciate the opportunity to be here. What I would like to do is spend a little bit of time providing from the investment banking perspective, a general overview of what I see are the determining business and economic factors that have been driving the recent merger and acquisition environment and how they relate to the topics we are discussing at the conference here.

          At the outset, I think we can divide the overall drivers of activity into three broad categories. One is the macroeconomic factors in the environment; the second is the condition of the financial markets; and the third is the sectoral changes occurring in particular industry areas. If we start off with the macroeconomic factors, I think we see at least in the last three to four years, certainly in the decade of the '90s, a fundamentally different environment than we saw back in the '80s.

          The '80s really were a period of great merger and acquisition activity, a boon time, a little bit of cowboyism out there in the marketplace. In the '80s we were in an environment where a lot of the activity occurred simply because stocks and companies were perceived as being quite inexpensive and cheap. I think one of the best ways of putting that activity into perspective is to look at what happened in the so-called crash of '87: we see that we were in an environment where the Dow went down to a low of 1700, while in the current environment of the last couple of months, where we have seen some downturn in market activity, we sit today at 8700, a 7000-point difference. So we can see that the '80s were really much more about financial determinants and that's what drove that activity.

          In the '90s, a very different environment exists. What we have had is an economic environment of extended period of positive economic growth, but I think importantly, very low real growth and very low inflation. This has been mainly in the U.S. but has impacted economic activity globally.

          In fact, we have been on the borderline very close to always worrying about going into a recessionary period, but yet we have been able to maintain the so-called steady course of always being slightly positive on the other side of the equation, with slow and continued steady growth in a low inflation environment. Not only has this created very favorable economic conditions for growth here in the U.S., but it has also created the right combination of variables to create a very active merger and acquisition environment, and the reasons for that conceptually are very simple.

          This growth profile has created an environment in which there is very slow and little growth in the demand equation and at the same time, very little or almost no flexibility around pricing. And so the ability to grow revenues appears for many parts of industry to be quite difficult.

          And so there has been tremendous pressure on top-line growth, the revenue line, for many companies and for those that are trying to continue to grow and to prosper in this environment. The focus of many industry executives has been twofold; one, ways to increase revenues without investing or expanding new capacity because of the general lack of demand for their products. Or alternatively, a way to reduce or rationalize their cost structure in order to increase margins and enhance profitability as another way to achieve that growth.

          And it's that blend of activity and the economic environment, that has driven many companies to the merger and acquisition marketplace as an avenue in which it can be cheaper and more practical to buy, acquire, et cetera, than to really invest in new capacity where that demand may not exist.

          Now, we do see some differences as we look at the global scene and I think that has had at the same time a different impact on the merger and acquisition environment. When we look at Asia, for instance, until most recently, we had seen a period of dynamic growth and in fact, we saw tremendous capital formation and capital investment going into Asia to expand new capacity and to invest in new capital formation, and there was a considerable lack of merger and acquisition activity relative to an area like the United States. In many cases, we had seen that again until recently in Latin America. In Europe, there was a little bit of a mixture of that but coming into 1999 the big factor impacting the marketplace is obviously the creation of the Euro and the reduction of trade barriers, and I'll come back to that.

          So this is the backdrop: what we'll call a healthy economic environment to promote merger and acquisition activity, the cause of that merger and acquisition activity, and the fact that such activity has to be fueled somehow in the financing markets (and during the course of the '90s, that fuel has indeed been there).

          The stock market had been steadily rising, actually reaching peak prices back in July until August, although recently we have seen a comeback. The rest of the financing markets were equally strong. The bank loan syndication markets were extremely healthy and so the banks were lending a great deal of money. There were very strong public high yield markets so those companies that were less than investment grade were trying to expand rapidly where they could, the high yield money was available, and interest rates were relatively low on an historic basis. It appeared that at one point they were at an historic 10-year low, then a 20-year low, then a 30-year low. Rates were constantly going down.

          Interest rates appeared to be low on a global scale, being low in Japan and in many centers in Europe. That combination of access to relatively easy, inexpensive money, whether it be through the bond markets, the debt markets, or the stock markets, created the cheap fuel for those people who wanted to participate in merger and acquisition activity.

          The third driver was the actual strategic activity in demand in the different industry areas. And again, somewhat unprecedented in the '90s, it appeared that just about every industry sector was impacted by different factors of rapid change, and I think the three broad categories that those fall into were: number one, new technologies and rapid technological change; number two, economic deregulation and government deregulation and changes in policies; and, number three, general globalization.

          Coming back to each of these forces of change and how they impacted industries overall, let us look at: number one, rapid technological change, which generated a huge number of new companies in the '90s, such as in the telecom and media sectors; the health care sectors; the Internet-related sectors; and the technology sectors. New wireless technologies were created and expanded, as were satellite technologies; and the Internet, which is changing a number of different industries; and the combination of data and voice. All of these were converging in an entirely new multimedia environment. Convergence was further fueled by advances in semiconductors, network technologies, software technology and, again, the Internet. On the health care side, advances in the life sciences including genomics, were changing industries very rapidly. Additionally, the need for investment and the need to create new research and development was driving a lot of M&A activity in the sector.

          When we turn to economic deregulation we see wholesale change in major industries, whether it be the banking sector, insurance sector, utilities and power, and again the telecom and media areas. In the United States, barriers to interstate banking came down; in Europe, barriers came down between countries to create consolidation.

          In the utilities sector we saw deregulation at both the federal and the state levels, as well as the same over in Europe. The telecom and media sectors now have competing channels of information, content, and people that cross over into different forms of the media, often with different ownership. The same is true in the insurance sector. Deregulation has driven massive consolidation in these industries, consolidating what were highly fragmented industries.

          When we look at similar changes in government spending policies we see a lot of change in the aerospace/defense areas, as well as in the health care sector. Obviously, as we have gone into a period of reduced military spending, we have seen automatically the aerospace/defense sectors around the world rapidly consolidated. The same occurred in the health care area as people became more conscious of cost control, new industries emerged on the services side, and consolidation occurred as people rapidly were trying to find ways to cut costs, thereby reshaping those industries.

          Finally, we had the overall impact of globalization which affected some of our "bread and butter" industries: industrial companies; consumer companies; and energy companies, which were all impacted by cross-border expansion and consolidation. Companies' main concern was how to cut costs, how to cut costs, how to cut costs. In terms of being able to compete on a worldwide basis, and in what was an incredibly competitive environment, while trying to find a way to maintain or even build market share. Across broad industrial sectors, whether it be steel or automotive or any basic industries, or in the consumer area, the need to sell brands on a global basis became critical.

          The energy sector was very much impacted by low inflation as commodity prices of oil were quite low, and therefore inhibiting many companies from investing in the research and development for new exploration and production and forcing them to seek other ways to cut costs. We saw tremendous consolidation activity in the energy sectors in order to pool resources to invest cost effectively in exploration of production or to find ways to cut costs out of refining and marketing organizations; this was highly unusual, but we have seen it occur rapidly in the United States and through Europe in particular over the last few years.

          In energy we have seen terms like "BTU convergence" come into play or whether it be electricity, power or any form of power, different companies have come together to be able to sell energy profitably on a commodity basis. I think a subset of almost all of these globalization trends is the privatization wave of the '90s, which was driven particularly out of Europe.

          We saw entire industries and large companies be created virtually overnight in the public markets as a result of privatizations that took place throughout Europe, Asia, and Latin America. These created new competitive companies that all of a sudden had to raise capital independently and compete on a worldwide basis in a new way which they hadn't had to face before; this has created a new dynamic in the merger and acquisition environment.

          I think much of this privatization wave actually presents an interesting microcosm of some of the overall activity that is taking place: let us focus on privatization and how that has unfolded, along with a look at the telecom market with the preceding comments that we made in terms of how that has been shaped by deregulation and technological change already.

          When you layer the impact of privatization on the telecom sector, what you have had are companies that are basic infrastructure industries worldwide, crucial to the public interest globally. Within that, after all of these companies have become public and are owned by new private investors, they will be more profit and loss oriented than perhaps the governments that recently owned them. We have seen examples such as, most recently: a Telecom Italia investing in Telecom Austria; Ameritech in the United States investing in Belgacom and TeleDanmark; France Telecom and Deutsche Telecom investing in Sprint back here in the United States; and, initially, a British Telecom proposed investment in MCI in the United States which then unfolded into an MCI/WorldCom transaction which then had significant repercussions in the European market in terms of control over voice and data communications and significant divestitures to Cable & Wireless as a result. We have also seen the Spanish telephone operator investing in telecoms in Latin America.

          Those are just certain examples that demonstrate that what has developed from a global perspective in one particular industry, where for many years previously people really only cared (and I say this somewhat facetiously) about local phone calls, that now a global environment has been created with large telecommunications companies on a globally competitive scale that are competing on a worldwide basis and trying to find their way within this new structure. You see this pattern being repeated throughout all of the industries that I mentioned earlier.

          And that struggle continues in many areas. In Latin America or in Asia what a year ago may have been an environment of rapid expansion with new capital easily available, is now starved for capital, and will increasingly look to the merger and acquisition market as a proxy for new investment to be able to continue the infrastructure spending that was so important to the creation and expansion of those economies.

          And so in that respect, the financing markets and the merger and acquisition markets have become largely proxies for each other, depending on which avenue can best supply the capital to fuel growth. I think as we look at this overall commercial scene, our own perspective is that the last couple of months have been an exception, and have really been an interruption in the financing flow but as we take a step back all of the other dynamics that we described are still very much in place.

          It is probably highly unlikely that any of those factors can be interrupted at the present time given what's been happening on a global scale from social, political, and economic standpoints. The demand that we see from Wall Street, from companies on a global scale, that are interested in mergers and acquisitions as a way to solve their corporate strategies, as an integral part of their corporate strategies find their way in increasingly global competitive world can only increase.

          We have seen in this past year the absolute all-time record of activity in the United States. Given the changes that will be happening in the European marketplace next year, our own prediction is that we will see (and we have seen a good deal of it already) an unprecedented level of merger and acquisition activity in the European theater. We don't see that diminishing. We think that activity will only increase, due to the competitive pressures in the global economy. And that's our prediction from the business side. Thank you.

          DR. STERN: Thank you.

          MR. RILL: Steve, do you want to have all the panelists go through before questions?

          MR. RATTNER: I thought so, if that's all right with you, Jim.

          DR. STERN: It was very provocative. I'm sure there are a lot of questions.

          MR. RATTNER: I'm sure there are a lot of questions, but just to be sure we have time for everybody why don't we do the other presentations and I think perhaps next we'll hear from the other investment banker on the panel, Ali Wambold, who is also my partner, who is a managing director of Lazard Frères which he joined in 1986, '85, and has been based not only in New York but also in London for Lazard, so he has worked on both continents for the firm. Before that he was vice president of Lehman Brothers. He is currently a Non-Executive Director of The Albert Fisher Group PLC and Tomkins PLC, as well as being involved with Corporate Partners, an investment fund affiliated with Lazard. Ali received a bachelor's degree magna cum laude from Harvard College and an MBA from Columbia Business School.

          DR. STERN: Those mikes will pick up, by the way, in theory at least two voices.

          MR. WAMBOLD: Merit didn't tell me that I would be following Steve but she did tell me it was okay and it didn't matter if we overlapped or contradicted each other. I'm kind of used to following Steve because I used to be at Lehman Brothers as well and I think Steve gets the credit or blame, as the case may be, for being one of the key people to train me in this craft.

          So everything I say is either complicated by a filial piety or rebellion. I think I kind of come at it at a slightly different perspective, and I start within the broader context of the formation of this Committee and of some of the comments that were made at the time by Attorney General Reno and Assistant Attorney General Klein, and I quote, they urge the U.S. and their trading partners to "work together to stamp out agreements among international competitors to fix prices and allocate customers in markets in order to protect consumers." Probably sounds familiar.

          The international dimension is underscored in Mr. Klein's statement that, "In today's global economy no aspect of antitrust enforcement and antitrust policy is more important than its international dimension." An obvious inference from these statements is that the antitrust authorities are concerned that international mergers may be anticompetitive and damaging to U.S. consumers.

          I'm sure you'll understand if as a business person and someone who makes his living negotiating mergers, my own perspective on these matters may differ somewhat from that of government officials charged with enforcing antitrust laws. Accordingly, as I describe what I think is happening in the field of international M&A, I hope you will indulge me if I go a bit further than mere description and try to put the topic within a practitioner's view of the broader context, the interest of consumers.

          What's actually happening? People speak of a merger wave. Is there one? Is it conspicuously international and what are its causes and effects? It's understandable that the international dimension has gotten people's attention. There are flashy cross border deals like some that Steve mentioned and other household names like BP/Amoco, Daimler-Benz/Chrysler, deals that are not M&A deals strictly speaking like British Airways and American Airlines, and as Steve mentioned the busted deals like British Telecom/MCI.

          The numbers are also staggering. According to Securities Data Corp. in 1997 in the first half of 1998 there were 1.3 trillion dollars worth of deals announced involving a non-U.S. company, at least one non-U.S. company. But international activity is only part of this story. The value of domestic mergers in 1997 represented 11 percent of GNP which was almost double the previous peak figure in each of the earlier two peaks of the postwar era, in 1968 and 1989.

          During that same 18-month period I mentioned earlier worldwide M&A activity was just under $3 trillion, leaving $1.6 trillion of strictly domestic volume or 55 percent of the total domestically, therefore, which is higher than levels that prevailed in the early 1990s. Cross-border deals involving a U.S. company represented only 11.5 percent of total transaction values, which is about average for the past 18 years, in fact a little bit below. And of the 50 largest deals ever, only two that involved a U.S. company were cross-border: Chrysler and the unclosed Amoco deal.

          Having said that, perhaps the most interesting statistic is the deals involving no U.S. participant at all totaled a trillion dollars in the last 18 months, 60 percent of the U.S.-only volume, and you can contrast that with the previous peak's worldwide M&A volume in 1989 of under $600 billion. So the numbers really are big. There really is a merger wave. And even though cross-border deals remain a modest proportion of the total, there is a tremendous amount of international activity that does not even involve a U.S. party at all.

          Mergers of the latter type can still have an important impact on U.S. businesses and consumers, though. Two large offshore deals in 1997 illustrate the point. The acquisition by ICI of the UK of Unilever's chemical business for $8 billion and the $30 billion merger of Guinness and Grand Met. Neither deal involved a U.S. parent but both included U.S. operations that might have been affected. Both also involved companies that could have easily ended up in the hands of U.S.-headquartered companies. Big as we are, it looks like we should indeed pay some attention to what is happening abroad.

          Why are we in the midst of a merger wave and why does this one differ from past ones, and if so, how? Steve touched on some of this. Again, I have a slightly different perspective, if I may. There have actually been a lot of studies done about what drives mergers, and by academics instead of just investment bankers, so you can take your pick. The National Bureau of Economic Research did a study in 1959 of U.S. merger movements from 1895 through 1956, of which there were three, and basically concluded that the primary drivers are in this order: a strong capital market and a strong economy, which also happened to be linked with each other.

          It may surprise some people that the author also concluded, and this I think will surprise people, that technological innovation among other logical candidates, in fact, was not an important immediate factor in those merger waves. What was the case then is consistent with the subsequent 40 years in my own view. Practitioners know this experientially and it reflects the most mundane of factors. First, business people like to succeed and often that means to make more money. Second, for every buyer, there has to be a seller and vice versa.

          Buyers don't buy if they are up to their ears in problems in their own operations and sellers don't sell if they feel buyers won't pay them full value. At the same time to buy a company, you need currency: cash or stock. If lenders won't lend and lend cheaply enough and if the stock market won't provide equity, again cheaply enough, the ability to pay for one's ambitions is limited. Simply put, while there will be mergers even in bad times, especially where economic pressure forces people to sell, by and large, merger waves are associated with periods when financial markets and the economy are booming, not just healthy.

          The conclusion that merger waves are basically driven by macroeconomic factors is somewhat counterintuitive since there is such a tendency to focus on the dynamics of specific industries that exhibit the greatest activity, and in the latest round, again as Steve pointed out, people look at telecommunications, financial services, utilities, and life sciences as industries disproportionately involved in mergers.

          Deregulation is frequently cited as a driver along with globalization and technological change. On reflection, it's not terribly surprising that the most dynamic industries will be most involved in M&A. They are undergoing rapid change. They tend to command the affections of the capital markets and by virtue of being newer will tend to be more fragmented. This is true in the high-tech industries of today as it was in the high-tech industries of the early 20th century, namely autos, railroads, utilities, petroleum, and chemicals.

          Indeed, today technology is changing the economics of older industries like banking and utilities, creating a new dynamism and thence pressure to merge and arguably driving deregulation, not, in my own view, the other way around. Probably the right chain of causation is what it has been in the past. Simplistically, politics start the process by creating a climate that is favorable for business development. A growing economy and ebullient financial markets reinforce each other. Technology shapes the direction of sectoral evolution, i.e., industries. And mergers can occur because buyers have the currency to pay.

          Why is the international arena so visible to us today? Generally speaking, the same factors that drive domestic mergers drive foreign mergers. The difference today is that what is happening abroad has finally become big enough to matter here. First, foreign trade has risen to about 25 percent of GNP today from just under 10 percent in 1960. Second, leaving aside the triumphalists who claim the U.S. is the only superpower left, our share of world GDP has been slipping for decades, down to approximately 25 percent today, if only as the rest of the world caught up following the devastation of World War II.

          Finally, growth and scale outside the U.S., along with the development of more transparent capital markets, have prompted a huge outflow of portfolio investment by U.S. investors, further raising international awareness and involvement here. From an American point of view, these trends have become translated into a bona fide international merger wave because foreign companies, specially Europeans, became big enough to catch our otherwise somewhat parochial eye.

          They began to merge in a big way because political developments in the 1980s and early 1990s, principally center-right governments hospitable to business and the collapse of the Soviet Union, ignited a secular boom in European business and financial markets and, as in the U.S., booms led to mergers. U.S. companies have participated too since basically you buy abroad for the same reason you buy instead of building at home: the acquiree has a position that would be too expensive or impossible to replicate; or, in a mature economy or industry, merging, as Steve mentioned, again can allow the two parties to reduce aggregate fixed costs, improving earnings.

          It's worth touching on the European Union in this context because it's often cited as a cause of increased merger activity in Europe. In fact, however, cross-border activity within the EU has been dwarfed by domestic mergers. For example, from January 1997 to date, the percentages of domestic -- strictly domestic -- merger volumes for the UK, France, Germany and Italy were 93 percent, 83 percent, 70 percent, and 86 percent, respectively, as compared with the aggregate volumes among those four. So in other words, of all the deals done by the UK in the UK, France, Germany and Italy, 93 percent were done just between UK companies.

          This is not to say that the EU is not relevant. It is. But the EU per se is not the principal factor and the direction of causality is at least ambiguous.

          What's going to happen to the great merger wave of the end of the millennium? If the markets and the economy turn down the merger wave will too. Period. How drastically will also depend on the macroeconomics. The downturn that Steve mentioned may have already begun. Average monthly volume since June has dropped by about a third from the first half's pace.

          Interestingly, the 1959 study found that peaks in mergers, like stock market peaks, tended to lead peaks in underlying economic activity. Even if the U.S. economy retreats, merger activity in Europe may remain relatively strong in the short term as long as the politics allow it, because the Continent's economy has lagged behind our own and because companies do feel the need to achieve scale on a Europe-wide basis. Secondary effects may therefore occur here as in Guinness/Grand Met.

          In addition, Europeans who are feeling flush may acquire here more aggressively, although they have been doing so all along with a few valleys when their economies were at their worst in the early 1990s. The most active sectors will be what they have been: telecommunications, financial services, life sciences and energy, for all the reasons Steve mentioned.

          In the emerging markets large scale activity will await recovery and the formation of larger business units and more developed equity markets and, in my own view, will be a long time coming. In general, M&A as we know it tends to require vibrant, transparent capital markets. They in turn depend on limiting corruption and essentially on a commitment on the part of people, not just governments, to market economics and true democracy without which it has no long-term sustainable foundation.

          Internationally, commitment to free trade is also a sine qua non. In the current political environment there are straws in the wind in Russia and Malaysia and maybe even in a resocialization of Western and Eastern Europe that suggest we may have already in fact passed the peak for this wave. My personal opinion is that the commitment to free market economics in most of these countries around the world is skin deep.

          What do all these mergers imply, assuming they do continue, for the consumer? Obviously if international mergers are merely another way to concentrate markets to conspire against the consumer, the consumer would be getting damaged. There is a larger view of consumer benefit, however, for which business people might like to find some sympathy under antitrust authorities. That view holds that a lower price per se should not be the only measure of consumer benefit. Prices that justify sustained investment in capacity, R&D, innovation and quality greatly benefit the consumer within the context of a wider value proposition.

          There is such a thing as destructive price competition and relief on the U.S. auto industry may be one reason your cars are getting better. A financially healthy industry also benefits consumers by providing employment and the resources with which to develop and maintain productive skills and improve their standard of living.

          An excessive reliance on price and on traditional measures of market shares can have perverse effects. The international arena is particularly subject to distortion due to political intervention. Price signals instead of providing their functions so cherished by economists of allocating resources efficiently can in fact reflect and perpetuate serious distortions. Wild currency fluctuations can make a healthy domestic industry appear uncompetitive artificially. It's hard to blame businesses for trying to hedge by investing or buying abroad. Government subsidy is perhaps the worst perpetrator of distorted price signals through managed industries that create national champions, which is essentially cronyism, domestic protection in the service of international economic competition, and financial subsidization by creating an artificially low cost of capital.

          All of these have been practiced in Asia and to a lesser extent in the European Continent. If we do have a global depression it's more likely to be due to massive overcapacity built up around the world as a result than to the people who financed a few rash hedge fund managers beyond prudent lending standards.

          For the regulator, if you believe in the U.S. free market model, and I hope you do, growth abroad will track the commitment of foreign countries to that model, and international mergers that implicate U.S. companies and assets will follow. In the larger notion I expressed of the consumer's interest's this could be very positive, leading to a more rational and professional business culture through proliferation and homogenization of best practices on a global scale. The presumption here of course is that such a culture fosters more efficient allocation of scarce world resources than what have had in the past.

          In protecting consumers, there may be scope to look beyond traditional definitions of markets and consumer interest, including global markets, and at the more complex issues arising from the fact that assumptions that work well in the U.S. political, business and legal culture don't always translate abroad. In particular, the "right" outcome may take into account the long-term health of an industry, currency effects, and distortions caused by the policies of other governments, including capital subsidies, domestic favoritism, and domestic protection. Thank you.

          MR. RATTNER: Our third and final speaker before we begin the discussion is James Langenfeld. Dr. Langenfeld has extensive experience in antitrust, intellectual property and damage estimation. His work experience includes 11 years at the FTC, the last six of which he served as director for antitrust in the Bureau of Economics. He has also worked as a vice president at Lexicon, a senior economist at General Motors, an economist at Amtrak and the Interstate Commerce Commission, and taught at the University of Missouri and Washington University in St. Louis. He has testified many times and is the author of numerous scholarly and policy articles, including the Department of Justice and Federal Trade Commission 1992 Horizontal Merger Guidelines and 1993 Antitrust Health Care Statements and so on. Let me now turn it over to Dr. Langenfeld, who has an overhead presentation for us.

          DR. LANGENFELD: The first thing I wanted to do is thank the Committee for the opportunity to come and speak in front of you. After hearing part of yesterday's presentation, I think you are doing very, very important work, but you all know that, and to some degree I must say I'm a little intimidated by this group of experts, because I'm challenged to think of what I'm going to say that's going to be new to you, who have thought about these issues for so long and in such detail. And also people who have put together some of the biggest mergers, which we have all read about in the papers.

          I typically help with strategic planning, and also do a lot of regulatory work. Obviously the merger wave and particularly mergers affect my business. What I thought I would do here today is to take the picture that the investment bankers have put together, and see if I can glue that to some of the issues identified by the regulators that spoke yesterday and addressed by the Committee. So that's what I'm going to attempt to do, and you will see how well I do that.

          I'm not going to talk about the international merger wave. My co-panelists have talked about that from a macro point of view. As a microeconomist, I'm going to talk a little bit about the specific motivations for mergers. I'm also going to talk about the competition agencies and how they fit into this picture, and about the current and future impact of merger regulations on the merger wave, on business, and on consumers.

          I think we have a lot of convergence between what I see as the motivations for mergers and what the investment bankers have described. But because I'm an economist and we think more simply, I have divided the motivations for mergers into two groups. One is financial motivations for mergers. As Steven indicated before, the current merger wave is different than previous merger waves because in part there is less financial motivation. Although I still see a very strong financial motivation in many of the mergers that I work on, it's less important now than other motivations for mergers.

          Let's just think about what the financial motivation is, very specifically and very visually. Partly the motivation can be a cash buying opportunity in a strong environment. You have the choice of investing in your own capital, or you can buy someone else's. It could be easier. It could be cheaper. It's a way to maximize your returns.

          The second is relative stock valuation. In the markets that we have seen recently, a very strong market, some companies have been doing better than others. And most of the deals that I see are financed through stock, so in an opportunistic way some companies have been basically acquiring other companies -- not for strategic purposes but because they have stock that they consider to be highly valued compared to another company that they can purchase. Another are tax credits. We who have worked on mergers know we have to get the deal done by the end of the year because there are great tax benefits, which obviously is a smaller focus, but there can also be some long-term gains to be had.

          Sustaining growth is another financial motivation. Sustaining growth is something that I as an economist still do not completely understand. The reason I don't understand this is, to some degree, the stock market clearly rewards growth. It's very, very important. But there are some deals where it's very surprising to me that that's going to actually increase the bottom line profitability, given the prices that are being paid. But yet it's still a major motivating factor and it doesn't necessarily mean that there is a strategic component to it. It just means that the stock market rewards that.

          Another financial motivation is diversification. Obviously as the economy goes up and down on a macro level, that has an effect on everyone. However in many industries, and I used to work in the auto industry, they perform countercyclically. Diversification can play an important role in reducing the risk of a company. You buy somebody who is going to be strong when you are weak.

          I see all of these as being a part of the current merger wave, but I agree with Steven. I think that to a large degree the other motivations, the ones that I'm more familiar with, the more strategic motivations, have been the ones keeping the merger wave going. The most important motivations that I see frequently are complementary products. A lot of times you want one-stop shopping, so complementary products can exist. Complementary geographic coverage can be very important, especially in international mergers. It can be less expensive to expand into a new market by simply buying someone who is there, someone who knows what's going on on the ground rather than having to do those investments yourself.

          Also complementary technologies and technology transfer are another important strategic motivation for mergers. In a lot of the high-tech industries, this is part of the motivating factor. It's not just a shakeout of the industries. A lot of times in telecom, drugs, and other innovation driven industries, people are looking for products that complement one another. That is to say, if I need a specific technology to put together a good telecommunications network, I may need your piece to get better access to the international markets, be it a geographic piece or be it a technological piece. I think that's a key driving factor in many of the high visibility, high-tech mergers that we see today.

          Protecting intellectual property is also important, once again looking at the international aspects. As you expand throughout the world, intellectual property is not protected everywhere the way it is in the United States and in certain countries in Europe. One way to protect that is for you to actually acquire someone locally, so you do not lose control of your technology. This motivation goes beyond patents. I see a lot of instances of practices that are developed within a company, that are not patentable but you want to protect them. One of the most effective ways is to merge, so you keep that in house so that you can't be duplicated by a joint venture partner in another country.

          Also, cost savings are very important. These can be administrative cost savings. A lot of times the antitrust agencies they don't want to hear about these savings, but in general you don't need two presidents, etc., and that's a major cost savings. Sometimes you do need two presidents as it turns out, and that wasn't such a big cost savings as it turned out. Another savings that the agencies don't like to hear about is best practices. It's not trivial to move a best practice in my experience. I worked at General Motors and God knows we couldn't do it easily. It's in general not trivial to move a best practice from one company to another, and that's a very important motivation in many industries. Auto industry is just one example.

          Ensuring, and this is a great economist term, "minimum viable scale" is another strategic motivation. In many industries you have to be at least "this" large. You have to reach a certain size to be an effective competitor. And so some of the mergers I see, in fact one of the ones that I'm working on right now, it's one of the main reasons the mergers are taking place. In one merger, there are two big companies. However, they realize they are in an industry where they are being pushed by their relatively small sizes. If they don't achieve a larger scale, they are going to be out of business.

          And last, the strategic motivation that the antitrust officials and this panel is primarily looking at, is acquiring market share. Acquiring market share is obviously a way just to eliminate a competitor. I have seen documents and I have worked with companies where that is the major motivation. Often these mergers don't get through the agencies, but that is a legitimate or at least one possible consideration businessmen can have in making a merger.

          I see these strategic motivations not going away over time, even with a lower investment level, because of the factors that Steve has described.

          Let's think a little bit and change gears in terms of what is the role of the competition agencies. This is something that obviously the panel knows; it's to prevent dominance in local markets, depending on the antitrust officials and the law, and to safeguard against forming cartels more easily. The concerns are focused just on the last of those motivations for mergers that I described. This motivation often doesn't play a very important role, but it is one role and it's one aspect of what motivates mergers.

          So in thinking about that motivation, what is the impact of the competition agencies on mergers and what impact should they have looking forward? I look at here, which are fairly simple statistics, the U.S. enforcement trend to see how the U.S. enforcement agencies have monitored mergers over time. The blue chart shows denials of "early termination." This is one aspect of any regulatory review of competition agencies. For those of you who don't know, early termination is going into the U.S. antitrust agencies and asking for an immediate review and clearance in less than the normal 30-day waiting period for the antitrust agencies. The agencies say either yes, or they will deny it.

          Here you can see there is a fair number, well over 800 in 1997, of denials of requests for early termination. If nothing else, this indicates that there is at least some small regulatory cost to preventing the dominance or the formation of cartels. Obviously the investment bankers, Ali and Steven, know this better than I do, there is a cost to any delay due to these denials. And days in a big transaction can mean a lot of money and a lot of inefficiency.

          In terms of the total second requests, there has been a slight trend upwards. It hasn't increased as much as the denials for early termination, but we are talking about in the neighborhood of 100 between the two antitrust agencies. A second request for anybody who has been in this business knows is a painful process for everyone involved. It is a detailed look through seemingly all of the companies' documents, giving them everything that they are interested in. This is a detailed look that can really go on for months in the United States. We see that there has been a trend upwards. Although 100 mergers a year go through this process, this is a small percentage of the total mergers and not all of these ended up in antitrust actions. Once again, there is a clear potential delay here and the cost of copying boxes and boxes of documents.

          However, if you look at it in terms of the overall merger activity, one thing I found interesting is there really hasn't been that much change in the relative number of second requests over time. The main driver of those big numbers in terms of second requests and denials of early termination has been the fact that the merger wave has hit. On a percentage basis, the antitrust agencies really haven't changed that much. Despite having limited staffs and despite an unprecedented number of mergers, the agencies are still out there doing about the same amount of activity in the U.S. that they have been over time. I can't discern any trend there.

          However, outside the United States, there has been an increase in merger review. Once again, the data I am presenting does not reflect the number of actions that were taken. This is just to give you an idea of the level of activity. As was indicated yesterday by Mr. Van Miert, there is a dramatic increase in the number of merger filings at the EU level. As you can see, it is over 180 in 1997. This is a fairly big change for them, and they actually have a much smaller staff than in the United States. So they are actually seeing a lot more -- and if anything, in my view and experience, the staff of the Merger Task Force is running a lot harder than they have in the past.

          The number of initiating proceedings really still only is in the 6, 7, 8 level. But these are important mergers with a significant impact on all the economies, and there is a slight trend upward. I don't know whether that reflects the pinch that they are feeling on their staff or whether they are just being very good about deciding a lot of these mergers don't really have an antitrust problem.

          But given those figures, what's the impact of antitrust review of the mergers? There is a tradeoff to economists at least, because -- I have already mentioned -- the review results in delay. Economists focus on economic efficiency primarily, but in some sense we had a debate in the 1980s and it went over to a consumer welfare standard. Taking that as the basis, the tradeoff tends to be: is there a significant reduction in competition compared against the costs of delay and the costs of denial. And how does that affect consumers, because the cost is a cost. Someone is going to eventually pay for these costs either in terms of a product that they didn't get, or those costs are going to be translated into higher prices at some point in time.

          The impact of merger regulations on these tradeoffs is important, and I know the next panel is going to talk about this. In particular the institutional impediments to efficient mergers can be very significant, because the vast number of mergers turn out to be not a competitive problem.

          In part, I think there are several things that are going to impact a merger beyond the cyclical nature of the global demand and beyond the specific markets where technology and strategic factors are fueling the mergers. One of these influences is what is going to happen with antitrust enforcement. I do see increasing scrutiny outside of the United States by several individual competition agencies, although not all of them. There is more regulatory activity going on, and more activity means either more delays on efficient mergers or perhaps better focus and more analysis of potentially problematic ones.

          Different legal standards can be a real problem affecting many mergers. I worked on several international mergers over the last year where it's become clear to me that the consumer welfare standard in the United States is not the governing standard. Dominance is the one that's recognized by many countries and, to the extent that the consumers are an issue, it's a second step. For example, the EC goes into the relevance of consumer welfare in competitive effects analysis, and it's given a lower priority. So in a place like the EC the potential for damaging a competitor, rather than protecting consumers, is much higher. That can lead to disagreements internationally. These regulatory disagreements can be a real problem for mergers where an international company is trying to explain what it's going to do and why it's going to do it. Because you have different rules in different areas, one set of legal standards can create problems for a merger, where the legal standards in another country would not.

          Multiple review by agencies will cause increasing problems, even if they enforce similar laws. Obviously the more agencies that look at a merger in a world without true harmonization, the more time and the more cost. There was a merger that I worked on, just finished, where it completely cleared in the U.S. The U.S. was the only place there really could be a competitive problem, and there wasn't. However, the merger needed to be reviewed in Mexico and in Canada. Because of slower filings the merger was delayed because all the paperwork wasn't in. These were not substantive issues. It was an efficient merger and yet the multiple review clearly had a negative impact on it.

          Also, and I try to put this as delicately as an economist can, there is the potential for decisions being influenced by factors unrelated to competition. Ignacio de Leon mentioned yesterday that anti-dumping in many ways is a fundamental problem for antitrust agencies because the goals seem to be different. They can be harmonized, but even within a country those type of multiple reviews really need to be worked on for harmonization.

          And lastly, even in perfectly legitimate mergers, there is always the reality for the delays in costs that have nothing to do with one of the problematic potential motivations for a merger. So far a lot of the clients that I work with, we go through the strategic phase and then we start talking about what do we do to get this clear to the antitrust agencies. After a discussion with the business people, this last figure shows what they feel like. They look and they see all the hoops they have to jump through, all the forms, and with all respect to the attorneys here, all the attorneys they are going to have to pay. If it's filling out forms, you don't need an economist. If you need an economist, then you do need --

          MR. RILL: Can we quote you on that?

          DR. LANGENFELD: Yes. Deals I worked on had specific troubles in Italy and no place else. As the antitrust agencies become more active and more numerous, this is going to be a "dead weight" on efficient mergers. That's not to say it doesn't have a good goal and that they are not protecting their consumer interest in their countries. But the one thing I think was raised yesterday, one thing this panel has to look at and think about is all these agencies and what they do, and how is this different in, for example, the United States. Let's take the United States as an example, obviously a place that I do most of my work. We have 50 states in the United States. We have two antitrust agencies which generally divide the market. They collude.

          MR. RILL: Not always perfectly.

          DR. LANGENFELD: But collusion is not easy. Even with two, it's not necessarily easy. But if you look at that, we see mergers that disadvantage someone. In Chicago, we had a merger that closed down a facility in Chicago. We were very happy in Chicago about that facility. We were going to lose jobs. But overall, it was a wealth creation and a job creation merger throughout the United States. When you have this type of multiplicity of interests, it's inevitable that there are going to be those types of could be conflicts. And I think we have been fairly fortunate in the United States that under Jim Rill and other people at the agencies that we have been able to get good cooperation between the states of the United States to not put barriers up for noncompetition reasons. But that's something that we have had to work on just in the United States.

          As these other competition agencies become stronger and more sophisticated, it's going to create a bigger and bigger impediment to international transactions. Generally speaking, I think fairly efficient mergers are used to expand geographically, to exchange technologies, to expand competition from a strong competitor from the United States into Europe and vice versa. There is a real danger to these type of mergers from increased antitrust review, and I applaud the Committee for the work it's doing. Multiple agency review is a problem now, but I think it's only going to become a much greater problem in the future. Thank you.

          MR. RILL: Steve? You want me to --

          MR. RATTNER: Yes, please.

          MR. RILL: I just want to lead off the discussion or participate in the discussion by reacting to some of the comments made by Ali which I thought were very perceptive. I do think in fairness that the selection of the quotes from Attorney General Reno and Assistant Attorney General Klein were focused, the ones you used were focused on the cartel phase of our work. And as you work through Assistant Attorney General Klein's comments, you will see that there is another phase of our work entitled mergers.

          MR. WAMBOLD: It's too long for an investment banker.

          MR. RILL: I know that investment bankers don't have time but they are fast readers. And in the merger phase I think you will find that the quite reasonable hostility towards cartels does not emerge. I would like to get into somewhat more of a substantive observation in your comment. You suggested the focus on the market share price analysis is somewhat wimpy, somewhat myopic, and I think that's correct. I personally think that's correct. However, I think that it doesn't fairly characterize the analytics used, certainly in the United States and really most other jurisdictions that have a mature merger policy, it doesn't fairly characterize the review process.

          Certainly market structure is relevant as a starting point but under the merger guidelines approach is only the starting point. Equally important factors are market dynamics, competitive conditions of the marketplace, likely supply response, facility of sufficient scale. Now there is a debate in the U.S., and I think a very legitimate debate, as to the extent to which the agencies appropriately weigh efficiencies in the market but in many respects they have certainly paid attention to them.

          I think that while I agree that a pure structure price analysis would be the wrong way to go, and I don't think it's the way the agencies have gone, I particularly appreciate Jim Langenfeld's concerns with frictions in the process, and I think that's going to lead into the next panel. But I wonder if the investment banker representatives here would give us some thought as to how, after all, we are supposed to advise on competition and enforcement of competition policy, how should the U.S. competition agencies in cooperation with sister agencies in other jurisdictions possibly change their process or fine-tune their process so as not to facilitate error.

          MR. WAMBOLD: I think that the agenda for this Committee is what you need to do and what you are talking about. I think that the problem from a practical point of view in putting together a big merger is there are all sorts of elements that involve personal motivations, how many presidents you have and if fewer than two, which one, there are the reaction of competitors, the reaction of suppliers, reaction of customers. People also worry a lot about employees being poached, the key employees being poached, and so uncertainty is the enemy of commerce and that notion is at the heart of a lot of debate about how much the world can continue to tolerate the volatility of the currency swings we have.

          So I think anything you can do to streamline and speed up the process to make it more predictable so that business people won't start something that they have a pretty good ability to assess they are not going to bring to fruition. And I must say that from my own point of view, in things that I have been involved in, I have had much more of a feeling that it's a bit of a black box than I think it should be. Now, that obviously suits the infrastructure. There is a lot of economic infrastructure that Jim calls friction, in the form of attorneys, in the form of experts, in the form of people who make a living out of this so there is an entrenched interest in friction.

          MR. RILL: I certainly hope that's not true.

          DR. STERN: I think it is true.

          MR. RILL: Easy for you to say.

          DR. STERN: Exactly right. I have no interest.

          MR. WAMBOLD: But predictability is important in business. It's hard to come by in the essential elements of commerce like the economy, growth rates; to pile on regulatory uncertainty is really kind of too much.

          MR. WOLITZER: The only thing I might add to that is I think in terms of using pricing and market share dynamics, I'm not sure there is a better way as a first cut to look at a particular situation. And to some extent I have been frustrated but also impressed that in the United States when we use the mysterious Herfindahl indices, that they haven't been hard and fast rules, or at least that's the way it's been recently, so that you can get to the other factors that I think are equally important that take place here.

          There are a number of different factors that will affect the public interest and consumers beyond just your price and one of your interesting dynamics is you look at several industries and I don't know how much attention has really been paid on its own investment or return on capital as opposed to what the price dynamics would be.

          One of the classic ones has always been the airline industry where certainly consumers are more sensitive to increases in airline tickets than many other things. Yet I think there have been studies that at a point in time the industry as a whole has lost money since its origination, and therefore can get a different dynamic as to what would make sense and what really defines competition in an industry like that, so companies' and industries' return on capital in order to promote the future progress of capital investment in the industry should certainly be taken into account.

          I think increasingly there will be another factor which is very hard to analyze, which is really in today's technological era, really time to market. There's a great business school notion that has really at the same time been behind what companies have been doing, where frankly pricing doesn't become nearly as important from a competitive standpoint to be able to hit as soon as possible your ability to reach the marketplace.

          From a competitive standpoint, if you look at what's been happening with the ability of computers and the Internet and R&D and scientific advancements, which I really think have been staggering in the last decade or two, the way companies analyze time to market and the way they believe if I miss the next generation I may indeed be out of business. The best industry to look at that is the computer industry itself but there are graveyards of great names in the computer industry that literally 10 years later don't exist anymore because they missed the next generation of product and they have disappeared.

          And you can get into long arguments as to whether that's good or bad in terms of the economic scene, whether companies should live and die, but when you put the regulatory framework on top of that, again, as Ali says, the regulatory framework shouldn't be what drives the company to disappear from existence but strictly the market competitive dynamics that takes it there. So time to market is going to be a very important notion I think going forward aside from just market share and pricing.

          DR. STERN: Thank you, Steve, and thank each and every one of you for really, very helpful presentations. It set the stage just as we were hoping, and really I am grateful for how well you complemented one another as well. Going from the macro all the way down to the regulatory impacts of this merger wave which may still be continuing. I have a couple of areas that I'd like to pursue.

          One is this question of the importance of friction, if you will, and whether the regulatory intervention in oversight is of greater concern going forward because as you discussed, the time to market is so much sharper and a competitive consideration. Does it suggest that not only do we have a proliferation problem of regulators who are potentially involved in this globalizing environment, but because of the time factor driven by technology that regulatory friction can become an even greater problem going forward?

          I'm wondering if that's something that can be a generalization or if that's more particular just to the "high-tech" companies? I have an answer to that myself, which is that everyone from the retailer as well as the high-tech company has to be able to hit the market and that there is kind of a natural speed-up going on. But I'd like to get your overview of all the sectors in that sense.

          MR. WOLITZER: My own view is that it's not limited to just high-tech areas. I think most companies one way or the other are increasingly impacted by the time to market. I think that the pace of that may differ, however, for different industries and therefore the regulatory concerns are a little bit harder to define and I wish I had the answers to those issues.

          I think there is a number of industries, I think the financial institutions industry may be one in particular where as I believe there would be a pace of change that takes place there, and that pace will dictate different degrees of regulation from different bodies. It seems that the typical pattern will be the poor financial institution given the regional nature of its business and that you will see the local domestic activity consolidate first in any particular area, or country as that's defined.

          Europe will be an interesting example of this. In France, UK, Germany, more local consolidation taking place first to create a certain critical mass and sort of weeding out the inefficient from the more efficient competitor and those will start to emerge more as European combinations start to cross country lines. And then ultimately you will start to see more of a global consolidation as you rise from that and start to cross limited to the United States or into Asia or into Latin America and you see little bits and pieces of that already, but I think the vast majority will take place over time. So there the time to market is defined a little differently. And the concerns of the regulators will in fact change as you go from the country, as you go to an entire continent, as you start to go globally. And so to create a single body up front that will define that dynamic is necessarily difficult because the needs of the constituencies will change as the institutions change their framework.

          DR. STERN: Staying on that regulatory friction potential going forward. Do you feel that there are going to be those sectors which will have more regulators participating? We've talked about two dynamics, the proliferation problem in terms of the numbers of countries involved who are antitrust regulators. We talked about this time to market which will put the pressure on even more to the regulatory burden of dealing with this efficiently, but there is also the problem in not only the United States but every country around the world that you have potentially other regulators who are not necessarily antitrust regulators but who are players.

          Is that a greater problem, say, in the financial area where you have the finance ministries who want to be players and may have other considerations? Is again that a problem that we ought to take into account, and is it a greater problem in some sectors than in other sectors? The banking one, of course, is the one that you mentioned, but we have got transportation, telecom.

          DR. LANGENFELD: I want to pick up on two points. The answer is clearly yes. I do telecom work also. When you have different agencies with different goals and a lot of regulatory power, there is a tension. Think about when the FCC deregulated in theory the long distance markets and their most recent attempt at deregulation was 800 pages. Hard to believe but true. So clearly there had been different goals and different agendas. That's really a problem and a lot of this takes place in the high-tech industry. Some, like computers, you don't really have that problem as much. The antitrust agency is getting more involved, but it's not a recognized public utility with an entrenched infrastructure.

          Energy is another where there is multiple regulation, and that's going to make it more difficult as they try to move from giving up the old regulations and putting in competition as an alternative. It's already been a long, tedious process and it's going to continue.

          I'd like to pick up on one point, though. When you were asking about the friction from regulation, I have thought about this a lot. One of the issues I think that's a particular problem sectorally for high-tech industries are the tools that antitrust regulators, competition policies, and economists unfortunately use to evaluate it. This is as much a problem, some may disagree, but I think it's as much of a failure in economics as it is anything else. If you are talking about a high-tech industry, and you are talking about "bang, bang" competition. Time to market becomes important, one company is eliminated, another one jumps in.

          The tools that we use and we developed over time although good for stable industries are just not necessarily very good evaluations of high-tech industries. Looking just at current market shares may not be informative. You saw what happened to Netscape, what happened to their market share very quickly for either illegal or legal business. Their share fell from 90 percent to 50 percent in a year and a half. Looking at a lot of the indicia, simple and complex indicia, that economists and antitrust regulators use, doesn't necessarily fit very well there. Part of it is we need a better paradigm. We need a better way to understand those and better ways to quantify that.

          In part we know that the issues exist but unlike market shares, quantifying the dynamics and weighing them is a very difficult thing. I see that being a particular problem in dynamic industries because these are the ones where there is going to be in some sense the most regulatory burden, because we are using tools that are snapshots of past behavior when it's many times not a very good predictor of future behavior.

          DR. STERN: Well, I suspect in general we are going to come across, in the course of these hearings and our investigation generally, comments on antitrust and competition policy practices which may be part or may or may not be part of our charge from the attorney general. We are supposed to be looking at the international implications of everything, if you will, and therefore we can get into these tool boxes that are being used. We can get into Hart-Scott-Rodino and how it operates generally. But it's a pandora's box, if you will, so I'm constantly trying to remind myself that we have to think about the international implications of these things.

          MR. RILL: Jim, may I just --

          DR. STERN: Do you have a comment?

          DR. LANGENFELD: Yes. The only comment I have is that one aspect of that is that different agencies use different tools. Part of the harmonization I think is very beneficial from what you're doing, and I see this in EU decisions, they are moving more towards the same process. The process overall might be improved but to the extent that there is a harmonization of approach, that's something that still needs work.

          DR. STERN: Yes.

          MR. RILL: Technical question, Jim, on your chart on the EU, the initiation of proceedings, is that actual proceedings involving a challenge that required an adjustment in the merger or is that opening a phase II?

          DR. LANGENFELD: Yes. That's phase II.

          MR. RATTNER: Are we supposed to wind up now?

          DR. STERN: That is a shame.

          MR. RATTNER: It is a shame. Let me thank our panelists for three very, very interesting presentations that gave us a very clear picture of what's going on in the macro and micro in the merger arena from a business point of view. And with that I guess we will break.

          DR. STERN: That's right.

          (Break)

          DR. STERN: We are now moving into session two of day two. We are going to be hearing from a variety of individuals on the question of information sharing and procedural harmonization. These are the folks who we were accusing of being part of the problem earlier. Now you are going to be part of the solution, and Merit is going to moderate you folks so you better stay in line. Merit, do you want to give them their marching orders?

          MS. JANOW: Thank you very much. Yesterday we had a very stimulating and rich discussion by leading foreign competition officials. I can't do justice to the comments made on mergers, but I think our task here is to cover some of the same issues with this very distinguished and expert practitioner and academic panel.

          Let me highlight a few points from yesterday as a context for what will follow and again, this is certainly less than a complete summary. We discussed the proliferation of antitrust merger control regimes around the world, perhaps as many as 50, including established countries introducing new legislation, such as Japan, to cover offshore mergers with domestic effects. We also discussed the need for greater transparency and heard some very candid remarks by enforcement officials about the challenges to transparency even in established regimes.

          We also discussed the evolution of cooperation between jurisdictions, especially bilaterally, and heard some officials speak to an emerging system of soft harmonization on substantive and procedural issues. The issue of timetable differences was identified as a particular problem, and the system in the European Union was noted by several as attractive in part because of fixed time tables. Conversely, differences in timetable between U.S. and foreign jurisdictions was thought by many as an especially challenging aspect of fashioning remedies.

          We had a fairly extensive discussion of confidentiality: what is confidential information, how might we define it, how serious a problem are leaks? In fact, no one thought leaks were a problem. We also had a broad suggestion that global concentrations may be calling for a multilateral system for merger control in the distant future. I'm hoping that this panel will give some very concrete analysis and suggestions on the direction that procedural harmonization and information-sharing might usefully go in the years ahead.

          In the interest of time, I think I will dispense with introductions -- all of us have your biographies and they are available to everyone here. We have such an outstanding group of experts here that we could use all our time in making your extraordinary backgrounds more fully known to us. I will dispense with that. What I would suggest, unlike the morning session, is that we end with an opportunity for each of you to underscore what you see as the critical factors in this area, but we start with a more free-ranging discussion and let you individually intervene as you wish by raising or putting your nametags on end if you wish to make an intervention.

          Let us start by each of you offering your assessment of the procedural differences that you see as the most serious issues for merging parties. Then, let us turn to an identification of what you see as the most useful policy responses.

          Anyone like to lead us off?

          MR. RILL: Why don't we do it alphabetically.

          MS. JANOW: Very well.

          MR. REYNOLDS: I really just want to comment on what I see as the main differences between the system of the European Union and the merger control regulation and the United States system because so many of these merger deals are subject to simultaneous assessment on both sides of the Atlantic.

          And the first thing that I'm going to say is if we didn't have a merger regulation the problem would be infinitely worse because we would then have to deal with the combination of a U.S. system and up to 13 or 14 different systems in Europe. The fact that we've got a merger regulation should make some of these problems far less than they would be. Even so, between the European Merger Regulation and the American system, there are indeed differences.

          The amount of information that is required under the EU system in the initial notification, of course, is very considerably more than it is in the United States, and that in my experience always makes the EU filing assume a much bigger importance in the initial planning stage. And even when parties are not clear that they have to answer a number of questions because they have these things called affected markets, nonetheless they have to put a lot of effort into identifying that they don't have affected markets. The fact that the European notification system requires a lot of information country by country is a problem.

          We have different thresholds, of course, in the EU Merger Regulation and the U.S. system under Hart-Scott-Rodino, but that of course is a function of merger control in Europe which is to establish a high level so that only mergers with a community dimension will get caught. And I would say right away on the issue of thresholds that I think as the Commissioner said yesterday, it would be extremely difficult politically to achieve any lowering of those thresholds to bring them more into line with the United States.

          The thresholds are something that we are going to have to live with because that has to be agreed amongst the Member States and there has been a long history of, I won't say tension, but negotiation between the Commission and Member States to arrive at a mutually acceptable division of competence between the Member States and the Commission. So on the thresholds I think it's something that we will not be able to change on the European side.

          But on the actual process of notification, e.g. what you have to put into a Form CO, those are areas where one could look to achieve a greater degree of conformity. It should also be possible to have greater conformity as to the triggering event -- the triggering event that requires you to notify. In the U.S. you have a much more flexible system, whereas in the EU technically you have to file within seven days of a signed legally binding agreement being concluded. And the Commission won't accept letters of intent as a basis for notification, and therefore there is not much flexibility in the European system. That is something which would not necessarily require the approval of all the Member States, and it is something which the Commission could, I think, work on.

          The other area, of course, is what happens in the second phase. The big difference is that we have in Europe a fixed time limit of four months, which means that simultaneous investigations in the EU and U.S. could get out of sync. Now, I think it's a tribute to the cooperation that has been able to take place that this hasn't posed as much of a problem as it could have done and in cases like WorldCom/MCI and the Guinness case, we have seen that despite the differences in the timetable of the review process in the second phase that it hasn't been a problem. But that doesn't mean to say it will never be a problem. And historically, if one reversed history, if in the Boeing case the Commission had taken the first ruling before the FTC, whereas of course it was the other way around, one could speculate on how that case would have come out. So it's not always going to be the case that those things can be satisfactorily and harmoniously dealt with. I think those are amongst the major differences that I would see and I'm sure Barry Hawk could amplify on that.

          MR. HAWK: Thank you for the invitation. I'm going to suggest what perhaps is an unconventional perspective. You have accurately heard that there is a proliferation of merger controls throughout the world. What is the problem? The problem to me in our experience is not differences. The problem is volume. The solution is volume control, not narrowing of differences. That suggests to me that the solution is therefore not harmonization of differences, it's minimization of the volume. That's my basic theme.

          I think the conventional wisdom is that differences in merger control regimes are the problem faced by private parties. Our experience is that the differences in merger controls do not significantly increase transaction costs. We have learned to live with differences in timing. From our perspective, timing differences is a nonissue. That just gives you another way of playing the tactics and what have you. The differences in filing requirements and duplication of filings, with word processing today and assuming tight coordination by the client, does not significantly raise transaction costs. You have word processors and you do a basic form for around the world.

          Again, our experience is that in most transactions the differences in substantive tests does not significantly increase private parties' costs. Again, you need coordination. The client can't have 25, 30, 100 different law firms all doing the same thing. Now, assuming tight coordination by the client, your basic antitrust analysis can be a white paper, 80 percent of which will be used everywhere in the world. And then you tack on issues in certain jurisdictions if you're notifying there. If you're in certain countries -- e.g., Ireland, Belgium or France -- employment is going to be important. So you think about employment and you add that to the filing. The markets are defined somewhat differently in some jurisdictions but the differences in the substantive rules -- as far as costs go -- are not the problem.

          There are differences which perhaps raise costs, but they are more of a policy problem. For example, merging parties can face a dilemma or tension between employment considerations and efficiencies. You think about that tension as you run around the world, because in some jurisdictions you are hesitant to say that the merger may be efficient, particularly when what you mean by efficiencies is that people lose jobs. But even with non-employment efficiencies or synergies, there is a fear that efficiencies may make you dominant or strengthen your position. It's something you live with but it doesn't raise your costs.

          You don't need to harmonize differences as far as costs go. You want to minimize the volume. Now one way to minimize the volume would be for this Committee in the United States to announce to the rest of the world: "thou shall not have merger controls. We are the only one in that can have a merger statute. You can't." Obviously and appropriately, this is not acceptable. But the trick is minimizing all this volume of merger control and all these costs or somehow try to reduce the volume so that transactions that have little or no antitrust importance are screened out. And that's the answer here to me.

          You've got to eliminate all these thousands, tens of thousands of transactions that raise no significant antitrust concerns in order that the costs for those transactions are reduced. It's the volume. I'll just throw out for consideration three possible solutions. First, the notification thresholds could be revised to require assets or sales within the jurisdiction -- transaction-related assets or sales in the jurisdiction. That would screen out a lot of transactions, that one change.

          Second, information has to be cut down. My preference today would be for some kind of a two-stage approach, maybe something along the lines of the EC, i.e. you provide a minimum amount of information so the agency can make an intelligent decision as to whether or not there is a concern. If they have a concern, then they can ask for more information, but nothing like the Hart-Scott second request. Understand that what happens in the United States is an American obsession with documents.

          Third, I'm a believer in firm deadlines. The firmer and clearer, the better. I think everybody operates better with firm and clear deadlines, so those would be my three suggested changes to try to screen out transactions that aren't interesting from an antitrust point of view.

          MR. RILL: How does firm deadlines, Barry, relate to your earlier comment that difference in timing is a nonissue?

          MR. HAWK: Well, if you say to me, everybody has the same loosey-goosey deadline, it looks like a deadline but it's not really a deadline because the agencies can force the parties to extend, and everybody in the world has that kind of a deadline. The second alternative is that there are firm deadlines but the deadlines are different: e.g., in one jurisdiction it's one month plus three months and in another you have three months plus four months. I would rather live with different firm deadlines than a world-mushy deadline or a world-form CO or a world second request. If you're going to harmonize, don't harmonize bad law.

          MR. RILL: Don't suggest that it's only in an international context that the second request is viewed as an abomination.

          MR. HAWK: I'm not suggesting that. I'm a European in this respect. I have no experience with Hart-Scott so I'm voicing non-American shock by what happens in some merger cases in the United States, the second requests. We are unique in the world, as far as I can tell. We are beyond the pale and if we are unique, that means we are smarter than everybody else (because we have these sophisticated economic models for which you need all these thousands of documents) or we are dumber than everybody else and therefore we need all these documents.

          MS. JANOW: If I'm not mistaken, Barry, Hart-Scott has some exemptions and screening of foreign transactions so you have some effort to incorporate just this notion of eliminating those transactions with de minimis domestic effects -- leaving open for the instant whether the thresholds are too low or high.

          MR. HAWK: No. No. I agree. You want to set a threshold requiring transaction-related sales or assets within the jurisdiction. My sense is that maybe the Hart-Scott threshold is a little too low today for international mergers; certainly the EC thresholds are too high. Other countries are all over the place. But I don't have an exact global number to offer; probably some percentage of gross GDP or something makes sense. But it has to be an Arabic number. I don't think market share is a good idea from the enforcer's point of view. Uncertainly gives counsel flexibility, too, so uncertainty is not always a bad thing from a party's point of view. I know you are not supposed to say that, but it's true.

          MS. JANOW: Thank you very much. Phil, would you like to be next and then Gabriel and Michael.

          MR. PROGER: As usual, Barry and Michael started us off with some food for thought. However, let me look at this a little bit differently. I believe that one has to look at three discrete and separate areas. One is the notification threshold which I do not believe is a procedural issue. I think it's a separate, independent issue and I agree with Barry. We need to stay away from a market share test or an effects test. The current U.S. financial trigger is preferable. It is predictable and relatively easy to determine. I believe, however, that the current $15 million threshold is too low and should be raised. The second is the procedural harmonization and the third is the substantive harmonization.

          I may be in the minority when I tell you I think it is going to be easier in the long term to get closer to substantive harmonization than it will to get to procedural harmonization. I think there is something about procedural harmonization that we do not talk about that we need to talk about. You are not going to achieve procedural harmonization unless you harmonize the culture of the countries involved. And what I mean by that is in the United States, given our Anglo-Saxon heritage of laws, we have adopted basically an adversarial system.

          And the whole process is geared to an adversarial system, and the second request is a creature of that culture. I do not think the problem is with the individuals. I think the problem emanates from the culture. If I was at the enforcement agencies, I think I would also be asking for a lot of documents and information. And until there is some agreement worldwide on what the merger investigation process is, I do not believe that there can be procedural harmonization. I think in our adversarial system, that individual is charged with enforcing a competition policy, where in a regulatory system, there are broader policies that can be taken into account.

          Almost all of the procedural differences, and particularly when I talk to counterparts across the world, and their dislike for the American system, I think can be traced back to the fact that our system and procedures are born out of an adversarial system. I personally prefer the adversarial system, but it has consequences. And I think it is going to be hard to obtain procedural harmonization as long as you have this underlying difference in the drivers between the systems.

          Defense counsel in an adversarial system may react differently than in a regulatory system. Thus, defense counsel may react differently in how he or she provides information, when he or she seeks confidentiality, under what terms, circumstances and timing he or she is willing to give the information. It alters the incentives and changes the process. So I think until we have a unified culture, you are going to have a great deal of difficulty in trying to achieve procedural harmonization. Both parties to this process, particularly in the United States, are going to be reluctant to give up sort of the rights and advantages that they retain in this process.

          Finally, the concept of sovereignty. I think that the nations are going to be reluctant to give up a lot of sovereignty. Illustrative of this problem is the fact that in the United States states do not entrust the federal government to look at a variety of transactions which I think are better left to the Federal Trade Commission or the Department of Justice. I think the states tend to be more political in their review of these types of transactions. While that is not inappropriate under our system of federalism, it does lead to less predictable, less true decisions. But the very issues I think that confront us internationally confront us domestically and I do not see them rapidly improving. I have got a lot of other comments on some of the other points but I think it would be a good place to stop and let someone else speak. But I am very concerned about what I call this driver on the system. That is, the different cultures.

          MS. JANOW: Thank you very much. Whether we are talking about prospects for procedural harmonization or differences or minimizing the volume of applicable law, may I also invite you to remember and draw out for us the nexus with global transactions as you see it: Is there a differential impact that warrants special scrutiny by this Advisory Committee or identify systemic features? Gabriel. Please.

          MR. CASTANEDA: Thank you. I think the main problem that perhaps this solution will face is how to design a system that takes account of transnational transactions being monitored by several merger control systems, and at the same time, trying to reduce transaction costs. I have two warnings before we get into the tools. First warning is that we face many asymmetries between systems. We are talking of basically two systems, the U.S. and the EU's systems which are quite developed, and then you have a large number of systems that are being developed which are now struggling to define themselves. So the pressure you are going to put on the latter systems to internationalize controls is going to be quite substantial. I believe merger control systems cannot be cloned. Systems very much depend on substance and before we discuss tools, we have to discuss analytical differences tied to the goals, as goals are going to define tools.

          Before we go into anything else, you should evaluate how easy it is to harmonize goals before we harmonize tools and I suspect that the problem is that before we talk of harmonization, we should talk about compatibility. I suspect that this is the way systems will evolve before we see any real harmonization work. So the first thing to look for would be to look at the different goals of different systems: are systems the same? Do they answer the basic questions why a particular jurisdiction wants to control a specific merger causing effects out of a particular country?

          Statutes, although they seem to be the same, are not identical. They show profound analytical differences and then enforcement become a Babel tower: it becomes impossible to understand the languages that are being implied in a specific multijurisdictional transaction. So one would have to look for a system whereby it is transparent to see what a particular jurisdiction is really looking for. Is it efficiency, what kind of efficiency? Is it innovation? Is it allocative efficiency? Is it a combination of the two? How much is consumer protection an issue? Is it a combination of consumer protection versus the others?

          The last thing one wants to see here is asymmetries that come into conflict when you see an agency enforcing an antitrust statute which has a chapter about mergers. I worry about a lot of merger activity, which comes to the agencies for free and they even get a fee for it, whilst we see no activity on the cartel area: a lot of work on the merger side and nothing on the cartel side. There is a problem and I would say that before we go on discussing the tools, one would have to look into the goals of the merger system itself. I will stop here.

          MS. JANOW: Thank you. I hope later on you'll come back and tell us whether you think that one can change the incentives through some global efforts.

          MR. BLECHMAN: I'd like to come back to one issue that a number of people have touched on in terms of procedural differences, which is the second request procedure in the United States. And I was thinking of Jim's question whether this is a specifically international problem or whether this is just a problem with our procedures in the United States that is independent of the global element.

          I think that the second request procedure is probably the major source of friction that I am aware of in terms of international transactions, and I think it impacts international transactions in particular for a number of reasons. First, Barry mentioned the "shock" of foreign companies that are involved in second request procedures. In my experience, that is literally true. I have had a number of cases where people call up and say, "I'm looking at this, this can't be right. I mean, this is all of our documents with respect to all of these product lines. They can't want that."

          And one of the reasons why I think that impacts foreign companies more than American ones is that they come for the most part from legal systems in which discovery is not the rule, so they are not used to litigations in which you have to produce huge quantities of documents. In such systems there are in fact concepts of privacy, for example, that are violated by the notion of large-scale document production in discovery.

          Second, I think that second requests have a particular impact internationally because they discourage mergers that are not only efficient in many cases, but also ones where there are international flows of capital. I think we have an interest in a regime that promotes an international flow of capital, especially when it's coming in our direction. And if burdensome second requests are a source of friction that discourages people from investing in the United States, that's a concern that I think is particular to international transactions and that ought to be considered in terms of its impact.

          Now, I understand that second requests affect only some 4 percent of all mergers, but many of those are very significant transactions. And most importantly, many of those mergers -- about half, more or less -- are not challenged or at least allowed at the end of the day without substantial changes, which means we are talking about very substantial, presumably efficient mergers that are being discouraged by a procedure that is peculiar to the United States.

          The other thing that is different about foreign companies is that, strange as it may seem, German and French companies, for example, typically write their internal memos and other documents in German and French. And the United States has this peculiar rule in both its antitrust agencies that we refuse to have anybody on the staff of the DOJ or the FTC who will own up to reading French and German, for example. Every document has to be translated into English. So, in the case of foreign companies from non-English speaking countries, we add to the normal burdens of a second request, man-months of work and huge expenditures which profit only the translating services that must be paid to translate all these documents. And it's not only the key documents that must be translated -- it's all foreign language documents, no matter how marginal they are to an investigation.

          The final point about our second request system is that, as Barry was saying, we don't have a firm deadline for the completion of a merger investigation. Instead, the time limit for the second phase of a merger investigation only starts to run when compliance with a second request is completed. Thus, there is built into the system an incentive for enforcers who need time to investigate a merger to make the second request as broad as possible to gain that time. Now, whether the enforcers in fact do that or don't do it in a given case, it is certainly the perception of many foreign companies that second requests are made overly broad to achieve that result. And that perception tends to undermine confidence in our system and a feeling that our system is not fair.

          In terms of what could be done about this problem, other than having, for example, a fixed end point for the second phase of an investigation, there are a number of possibilities. Phil mentioned that our system is inherently adversarial. I think it is once you hit the second-request stage. However, I think all of us have been through cases where there has been a "one and a half request," i.e., where, after the initial filing you talk with the enforcers. You, in effect, ask what's bothering them, if anything. They tell you, and you produce a very narrow class of documents, and maybe have an interview of a knowledgeable business person to resolve their problem, and it goes away.

          And that process, which is I think part of the practice in the United States, is something that maybe could be fostered through making it an official part of the way we review mergers. And the other thing that could be done easily is to invest in hiring some people at the FTC and DOJ who speak at least the most common European languages and stop insisting on translations of all documents.

          MS. JANOW: It's interesting that you say that, Michael. In my corporate experience there has been a reluctance to rely on any translation except one's own supervised translation. If you would be willing to rely on staff interpretation that's intriguing.

          MR. RILL: Can I suggest two comments have prompted a particular issue, and that is the fixed timetable. And one of them is something that has been in my mind for quite sometime and in the minds of other members of the Committee.

          Some of the responses we get in informal conversations with the staffs at the agencies and we kick that around with them is well, it's a nice idea but how does that protect us against the company's refusal to turn over any documents during a second phase or an in-depth phase. We run up against a timetable, the company is saying well, we'll give you this, you just be happy with it or we'll give you nothing. They say that's intolerable. My response is well, it's tolerated by the European Commission. And the response to that is well, they just don't do quite as thorough a job as we do. We have to be more certain than they are. I'm not sure that's a valid answer, but I wonder if you could address that and the balancing problem that's been raised by anonymous staffers.

          MR. BLECHMAN: I think, Jim, that how we strike that balance reflects a basic difference between the American legal system and many European legal systems. Generally, we are very intolerant of any uncertainty as to facts and any holes in the evidentiary picture, and we really don't weigh that off against an interest in efficiency or anything else. I think that it's something that needs to be more balanced in a world regime where you recognize that there are certain economic benefits to transborder transactions and to getting them done within a reasonable time frame. Also, there are certainly other tools, besides an infinitely expandable deadline, that can be used to enforce compliance with subpoenas. There are other ways of doing that.

          And Merit, to address the point that you raised about don't you always want to control your translations, I think that, in any merger, there are only about a handful of really outcome determinative documents, and it is only with respect to those that you are going to be talking about the accuracy of the translation and what the document really means. The real burden comes in translating hundreds of thousands of documents that are not outcome determinative.

          MS. JANOW: Thank you. Spencer?

          MR. WALLER: I have a perspective that in many ways is similar to what Barry Hawk says. I'm tempted to say I agree with everything people have said and just let the discussion move on. I do have one different perspective to offer. I don't practice in this area on a day-to-day basis like most of the people on this panel. But I do study and teach it. I agree with Bill, that our system is born out of the adversarial system. I think it's increasingly clear, especially in the area of mergers that we do really have a system that we can view as regulatory, and I think that that can be a key to a lot of this. I think almost everybody who interacts with the system recognizes that in the United States and virtually every other country around the world it's far more important what the agency people think than what the courts think.

          And in the U.S., I think it's the same, even though it is certainly born out of the adversarial system and it certainly influences the attitudes and baselines of the people who work in it, but the laws aren't created in the courts anymore in the merger area, it is created through the agencies, through guidelines and through the consent decrees that they reach. And the critical decision is will the agency make a second request? Will the agency challenge it? Can you work out a restructuring that makes people happy?

          And it's only the tiniest number of deals where a challenge is made and a district court judge has anything to say about it, and if you view it as a regulatory system, I know that's just an anathema to some people but if you do, I think you have to compare it to some systems and you have to take a look at the same kind of inherently often beneficial or neutral transaction. I think almost alone of the major regulatory systems that are multijurisdictional, companies involved in multinational, transnational mergers do not get the benefit of the bargain. This is a concept and maybe it's related to what you said, the key is volume, not harmonization. My way of thinking about it is the benefit of the bargain.

          And I'll give you two examples, it's an issue I raised at your program a couple of weeks ago, Barry, which is when you compare antitrust merger regimes to securities and tax regimes, you have just as many agencies with just as many legitimate interests in looking at a transaction and figuring out who is going to do something and what are they going to do. And, in each case, by the way, there are widespread information sharing and cooperation agreements in both of those areas.

          In fact, the antitrust area borrowed heavily from the securities and to a lesser extent the tax in creating this kind of model that we use when we go out and negotiate with other countries. In the securities area, it's a little more informal, but obviously there are many, many private and public regulatory bodies. And to the extent that in the United States a company, especially a foreign company, is adequately regulated by one or more of those foreign bodies, the company gets some major benefits out of the way the SEC approaches it.

          And the benefit of the bargain is that the agencies cooperate, but there is either a formal or an informal kind of allocation of jurisdictions so that the company is not getting pecked too many times by different people with different regimes. For example, in the area of disclosure of corporate governance information, the SEC has simply passed regulations that effectively exempt foreign companies to limit their disclosure in the U.S. to whatever they would disclose back home. It's sort of a form of mutual recognition, in the sense of a German company, whatever is good enough for the German authorities is good enough for us for that purpose.

          I'm also told by people who work in this on a daily basis, there's a lot more informal deference in the securities area. That once the SEC has the confidence that a company is being regulated by a bona fide securities commission or exchange, that they go easy in a number of ways that never is even reflected in our statutes and regulations. I think in the tax area, it's even more formalized. There are tax cooperation treaties between the United States and dozens of countries. And the cooperation is used to provide a very tangible benefit, in particular, to avoid double taxation and to give companies a degree of certainty in their planning with respect to things like transfer pricing.

          It's a model that I think we ought to at least study. I'm not expert enough to be able to say how much of it we can borrow from, but I think there are some tantalizing possibilities. The basic model of both the U.S. model double taxation treaty and the OECD model which came somewhat later, is that a company that thinks it's subject to double taxation can bring that issue to the attention of the competent authority, meaning its own taxing authority.

          And the burden shifts, the burden shifts from the company being subject to two or more taxation regimes to the countries having to consult with each other and work it out in order to avoid that double regulatory regime to the detriment of the private company. And it's done quite regularly and routinely.

          And to take it one step further in the tax area, and I'm exhausting my information on the subject with this revelation, is the concept of the advanced pricing agreement, where companies that are concerned that they may be subject to different countries' regimes on how they allocate income and expenses can essentially shift the burden to the countries in advance, for them to reach agreement as to who will take a look at what part of the global operations of that firm.

          And I think there are other areas as well from the international trade area as part of the WTO regime they are pushing the idea of mutual recognition in many, many regulatory regimes, especially in food and drug law where companies have to get multiple approvals under different standards with different timings. And there is substantial deference for the decisions of one or more regulators. In all of these many settings, there is a point at which the burden shifts from the companies who are subject to the multiple regulations to the governments to work it out.

          That's the common theme that I have observed, and that's an area that could be extremely helpful in the particular subject matter that you are charged with looking at and reporting.

          And I think these issues have to be viewed at all three stages. Clearly, the vast majority of deals get reported in a burdensome and expensive way and never challenged. We have to address that. Somewhere in the middle is whatever you call the second stage, second request in the United States or the full formal investigation of other jurisdictions. And there is still these issues at the handful of deals where more than one agency at the end of the process has indicated a serious attempt to challenge, unless there is some restructuring of the deal. And I think the people at this table know far better than I do that you can often accommodate one or more jurisdiction's concerns especially if they are not a critical market to the business purpose behind the transaction, but there is a point at which, after having run the gauntlet, you are just getting pecked one too many times and the deal will collapse under its own weight.

          And I think we have to address that as well, because that has the greatest impact although in the smallest number of cases. And one of the most encouraging things I heard at the recent Fordham conference was this idea that at least in some of the cases some of the jurisdictions are informally taking a position that if the relief in country A looks good enough, country B will say fine, we are done. We are not going to do anything further or anything different and that's again a notion of mutual recognition and a burden shifting from the companies to the regulators to ensure that double regulation is kept to a minimum so that is the germ of a solution that I would throw out as part of my view of the problem.

          MS. JANOW: Thank you very much. I think that theme was echoed yesterday by the enforcement officials, in the merger context in that cooperation breeds cooperation. Cal Goldman.

          MR. GOLDMAN: I'm pleased to participate in this discussion and I want to raise perhaps a slightly different tangent in examining the kinds of issues that we are wrestling with in this Committee. We all recognize that there are differences in timing and thresholds and waiting periods and substance and so on. I'm not going to attempt to categorize them because you are well aware of the evolving differences and there is a debate as to whether they add to transaction costs. I believe they do. There is a different view on that but certainly corporations that I have worked with find it astounding to be hit with an information request in one jurisdiction that requires certain disclosure at times even beyond disclosure of the counterpart of the United States. By way of example, we have a discussion today in Canada where the bill before the Canadian Parliament which will in the first filing of a long form require information beyond 4(c) Hart-Scott, in terms of business planning documents. So you can see how that difference in itself raises questions when a business person is operating in more than one jurisdiction as to why we have to file more even in a country like Canada as compared to the United States, and these are legitimate questions. I'm not going to criticize or compliment the issue. I just note that these issues exist and will continue to exist as we face more and more transborder transactions.

          One of the ways that I would like to suggest that the problem be addressed is to adopt the adage of walking before you run. Jim and I and others sitting at this table have all talked about the need to move carefully in very small steps, especially when dealing with international issues, or you may trip and fall. And in this regard, it may be worth considering some form of optional filing, this has been talked about on other fronts. In fact, we had a discussion on it about two years ago in an informal roundtable at the FTC that Debra Valentine convened as part of the OECD merger convergence project.

          There should be in place a mechanism that permits corporations in the context of a transborder deal, which we are all seeing more of, to elect voluntarily to proceed with a common form. And we can use that as a laboratory for a period of time, for a number of years to try to ascertain the concrete issues and the kinds of problems which may arise. I'm going to touch more on the whole realm of issues dealing with confidentiality and information sharing, but I would like to roll that kind of framework into this optional filing mechanism.

          The mechanism would, at least in Canadian terms, probably have to be subject to regulatory approval but not necessarily treaty status, again, walking before one runs. I can't speak with expertise on the U.S. system and whether one could get a deferral from strict compliance with Hart-Scott but certainly in Canadian terms if and when the bill passes before Parliament, the one that amends the filing provisions under the Canadian Competition Act, there will be discretion in the government to change filing requirements by regulation as opposed to legislative amendment. If it can be done by regulation there is no reason why a concurrent optional mechanism can't be introduced and blessed. I'm not going to answer the issue from a U.S. perspective.

          If a mechanism were in place that permitted a common form with specific thresholds it probably would necessitate upping the threshold to make it worthwhile from the perspective of merging parties and it may be worthwhile from the perspective of governments as well. You are going to get the ability to work together. You are going to get the ability to share information. There has to be a tradeoff on both sides.

          With that in place with fixed timetables, to come back to Barry Hawk's point, which I completely agree with, certainty is essential for investment and to the greatest extent possible should be maximized, with substantive information requirements that would necessarily be different in both jurisdictions because you would have to answer issues between two markets within each jurisdiction. I think this would go a long way to achieve the kind of effective use of time on both fronts.

          And that's really what we are talking about, cutting down government resources so that the time can be used effectively and efficiently and the same on the private sector side that Spencer referred to in the MJDS type of system within securities filings. It's working. I have spoken to my colleagues on the security side and it is working. And people can elect, it's not compulsory. You can elect to proceed with an MJDS kind of filing, that works as between the Ontario Securities Commission and the SEC. You're saving time and saving headaches and I have to wonder why the same principle could not be employed in this field.

          I would amend my initial statement by saying that I would like to come back to the whole issue of confidentiality because when you ask what problems we are seeing today, Merit, from my perspective talking to business people I deal with in Canada and through other organizations internationally, I really do believe that effective results on the merger front and in other transborder