Economists wield big influence in merger reviews

Economists wield big influence in merger reviews

By Holly Yeager, Published: June 2

When executives from Comcast and Time Warner Cable met with Federal Communications Commission staffers last month to make the case for their merger, the expected antitrust and communications lawyers went along with them.

But the companies also took four economists — part of a highly specialized but low-profile set of number-crunchers who can be highly influential when it comes to winning approval for big deals like these.

“People think lawyers run the world,” said Matt Wood, policy director at Free Press, a consumer advocacy group that opposes the merger. “These are the people the companies hire to help the lawyers do that.”

These elite economists — some earning as much as $1,000 an hour, like their law firm peers — try to predict the questions that antitrust regulators will have about a deal. And then, using gobs of data about products, companies, markets and industries, they help prepare answers that will persuade regulators to see the deal — and its effect on things like prices and consumer choice — as their clients do.

Some work full-time at speciality consulting firms, and others are based at top universities. And while they don’t like to talk publicly about their work, especially while a proposed deal is under review, public filings and company statements reveal quite a bit about what they do and the impact they can have.

Take Compass Lexecon, whose Web site boasts of a staff that includes “135 highly skilled Ph.D. economists and econometricians and more than 145 other individuals with advanced degrees.” The firm does work in many areas and often gets called on when economic experts are needed in big legal battles.

But it got its start with antitrust issues, and last year worked on several big deals, including US Airways/American Airlines, OfficeMax/Office Depot and Omnicom/Publicis, helping make 2013 the firm’s best year ever, according to a recent letter to clients.

A Compass Lexecon team advised the OfficeMax board of directors and then provided an economic analysis of the proposed deal. The firm also worked with lawyers working for Office Depot on the deal, the client letter said.

“Compass Lexecon performed detailed econometric analyses of the competitive retail price effects of the transaction and the merging parties’ pricing,” the firm said. “The analysis concluded that there was no systematic evidence that the proposed merger would result in higher retail prices,” a finding that was cited by the Federal Trade Commission as one of the main reasons to approve the merger.

Compass Lexecon is also working for Comcast, and, according to a document filed by the telecomms giant, four of its economists were on hand for the May 6 meeting with more than two dozen FCC staff members.

Comcast, which has said it expects the deal to be approved by early next year, declined to comment on its use of economic consulting firms, and Compass Lexecon declined to comment on its work for Comcast. But a redacted version of a 19-slide presentation made by Mark Israel, a Compass Lexecon economist, at the May meeting makes several conclusions about the proposed merger, calling it “pro-consumer, pro-competitive, and in the public interest.”

Two other economists working for Comcast’s lawyers, one a professor at Stanford and the other an antitrust expert at Cornerstone Research, another consulting firm, also declined to comment on their work. Their early assessment of the deal, filed with the FCC in April, reached similar conclusions. “The proposed combination … will benefit current and future residential consumers, businesses, and advertisers across the footprint of the combined company,” they wrote.

While firms like these are most often hired by companies trying to win approval of a big deal, they are occasionally tapped by other companies with a stake in the outcome, or by government agencies that need help on a particular case.

On the Comcast deal, Discovery Communications, a large programming supplier, has hired two analysts at Charles River Associates, another well-known consulting firm, according to a company filing with the FCC. A Discovery executive said last week that the company was still studying the deal.

Public interest advocates who oppose the deal point out that the consulting firms are filled with economists who have passed through the revolving door and can give clients an insider’s view of the process. One of the best known in the field is Michael Katz, a professor at Berkeley’s Haas School of Business who served as the FCC’s chief economist and in a top job at the Justice Department’s antitrust division. Katz, who is affiliated with Compass Lexecon, said in an email Friday that he isn’t currently working on the transaction for any company.

Critics of the deal also complain that they can’t afford the high-priced statistical help that companies use to advocate in front of regulators. But they acknowledge that the government has its own economists charged with weighing big mergers and that sometimes other companies share their views and weigh in with their own heavy-hitters.

For the economists who do the work, the debates tend to be about different things.

“It’s very academic, and often very technical,” said a person who runs an economic consulting firm, about things like error structures and regression analysis. “It makes economists very excited.”


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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