Bottom shekel / Antitrust Authority's David still awaits his Goliath
The natural gas sector could give trustbuster David Gilo an opportunity to show his fangs.
The head of the Antitrust Authority, David Gilo, has been at his post for almost a year now. After several years of steadily diminishing opposition to mergers, there are signs that change is afoot. Under the previous director, Ronit Kan, the authority rarely objected to proposed mergers. The trend seems to be changing.
The authority reviews both "horizontal" mergers between competitors and "vertical" mergers between suppliers and clients. In both cases, the authority's role is to ensure that consumers don't get shortchanged.
Gilo has blocked four mergers since taking over. In July he torpedoed Fattal Hotels' acquisition of Hotel Hod on the Dead Sea. This decision was puzzling because there are many hotels on the strip - which happens to be the lowest place on earth.
Gilo has coined the term "salami mergers" - acquisitions of small companies by a dominant market player. Although each small takeover doesn't threaten competition, a series of small ones does.
When considering salami mergers, the authority is apparently guided by the view that not every market requires big competitors. Smaller players can be allowed to nip at the heels of the dominant ones.
Gilo's policies shouldn't be judged by the number of cases he has handled, particularly when compared to his predecessor. It could be argued, for example, that despite Kan's few objections to mergers, her opposition to the link-up of fuel companies Sonol and Dor Alon (a case that reached the Supreme Court ) was very courageous.
It seems this latter-day David has yet to meet his Goliath, though he may be on the way in his attempt to achieve separation between natural gas suppliers.
So what's Gilo's record in blocking mergers? The data are misleading. According to the authority's 2011 annual report, Gilo opposed only one merger, a mere 0.5% of all proposals submitted.
The report shows that four requests were subsequently withdrawn. When these requests are included, Gilo's opposition to mergers rises to 2.5%.
In August that year, Gilo opposed a merger between HPS and Heshev Information Systems, two companies that develop special financial software. This is a very narrow field, and Gilo thought the merger would further restrict it.
In November, Gilo blocked the sale of sunglasses chain Erroca to international power Luxottica, the owner of Sunglasses Hut.
When Gilo approves mergers, it's clear he doesn't hesitate to set conditions. In January, for example, he made the merger of Newpan and Mini Line conditional on the sale of Best Buy. The Mega supermarket chain was allowed to buy only two outlets of the Maman chain, with two other outlets (in Hadera and Be'er Sheva ) excluded from the deal.
When big players don't hike prices
There's nothing new about conditional approval of mergers; this happened during the tenures of Gilo's predecessors as well. Still, Gilo has been much more aggressive. It's often said that in markets with low entry barriers, the dominant forces make sure not to act as monopolies by raising prices, since this would urge more players to enter the market.
In this respect, Gilo is faithful to the approaches he espoused as an academic. In one publication, Gilo proved that even in a market with low entry barriers, the leading forces won't lower prices until a new competitor threatens to enter the field.
"Based on the dry facts, it's hard to say conclusively that Gilo has taken a harsher stance against mergers, relative to his predecessors," says Avner Finkelstein, former deputy legal counsel at the Antitrust Authority and now a lawyer at Gornitzky & Co.
"This could have been a random, one-time cluster of problematic mergers. But the director has publicly declared his approach on proposed mergers. It appears to be different, though not necessarily harsher. Whereas the previous approach was that vertical and salami mergers don't seem to pose competitive risks, Gilo believes that these should be examined as meticulously as horizontal mergers, or as mergers that give both sides a sizable chunk of the market."
Gilo is now handling a criminal investigation into dairy giant Tnuva. The authority raided Tnuva's offices in September and questioned senior officials including chairwoman Zehavit Cohen and CEO Arik Shor.
The Tnuva investigation is a variation on a familiar theme, with the probe into gas distributor Supergas its earlier incarnation. That investigation is at the hearing stage, after a decision to indict was taken in principle. The focus of both investigations is the relationship between clients and their lawyers.
In the Supergas case, the Antitrust Authority demanded data on the movement of customers between natural gas suppliers. Supergas is under suspicion of not providing this information as requested. Supergas denies any wrongdoing, saying it simply followed the advice of its antitrust lawyers.
The legal precedent
Does a client's claim of following legal advice stand up in court? The Supreme Court's key ruling on this issue is known as the "Tnuva ruling," based on an antitrust case targeting the dairy giant.
In that ruling, then-Supreme Court President Dorit Beinisch set conditions that let a defendant base his defense on having followed legal counsel. These conditions include a written document from defendant to counsel that outlines all aspects of a problem. The defendant's professional standing also has a bearing on whether the legal advice can serve as a defense.
So it's no surprise that the Antitrust Authority's investigations usually involve companies' legal counsels, not just their top managers. Gilo has cracked down on noncompliance in providing information. He has adopted work methods based on thorough market research, which is only possible when the authority has accurate and comprehensive data. Companies that conceal data impair the authority's ability to make the right decisions. As things look now, the Tnuva and Supergas investigations give Gilo a chance to maintain his tough reputation.