The Celler-Kefauver Act

What Is the Celler-Kefauver Act?

The Celler-Kefauver Act was a law passed by the U.S. Congress in 1950 to prevent certain mergers and acquisitions (M&A) from making [monopolies](/imposing business model) or in any case altogether lessening competition in the United States.

At times alluded to as the Anti-Merger Act, it fortified existing antitrust laws and close escape clauses present in the Clayton and Sherman Antitrust Act.

Grasping the Celler-Kefauver Act

Different statutes have been administered by governments over the course of the years to assist with safeguarding consumers from predatory business practices. Antitrust laws, as they are known, exist to guarantee that fair competition exists in a open-market economy. Their goal is to prevent certain companies from combining efforts on the off chance that it is accepted that such a move would reduce the options accessible to consumers, restricting supply, and possibly bringing about higher prices for goods and services.

The Celler-Kefauver Act denoted an important step in getting rid of covetous corporate behavior. Presented not long after World War II, this specific law based on others that preceded it, seeking to close existing antitrust provisos by ensuring that all mergers across industries, and not just horizontal ones inside a similar sector, would be carefully investigated and policed.

Most importantly, the act targeted the accompanying types of corporate tie-ups:

• Vertical Mergers: at least two companies that give different supply chain capabilities for a common decent or service join together. Such mergers can cause an antitrust problem on the off chance that a company purchases its competitors' providers. Doing so could empower the entity to successfully block rivals from getting to raw materials or different essentials.
• Conglomerate Mergers: Companies associated with various sectors or geographic areas combine to extend their markets and product reach. At the point when two monsters combine into one entity, there is a risk that they will utilize their brand name and financial muscle to wipe out competition, and afterward, when there's nobody left, jack up prices to the weakness of consumers.

History of the Celler-Kefauver Act

One of the earliest antitrust laws passed by the U.S. Congress was the Sherman Antitrust Act. This legislation, carried out in 1890, gave controls on certain M&A activity, yet just on account of buying outstanding stock. That, at the end of the day, implied that antitrust rules could generally be evaded by just purchasing the assets of the target corporation.

Recognizing the Sherman Act's unclear language and numerous provisos, the U.S. Congress answered in 1914 by correcting it. The subsequent Clayton Antitrust Act looked to explain numerous interpretation issues by adding specific instances of unlawful actions by companies. Notwithstanding, it, too, contained flaws, including uncertainty encompassing price-discrimination, and an inability to address escape clauses with respect to asset acquisitions and acquisitions including firms that weren't direct competitors.

When those situations turned out to be clear several additional amendments followed. To begin with, the Robinson-Patman Act of 1936 went along, supporting laws against price discrimination practices. Then, in 1950, the Celler-Kefauver Act was passed to handle the other obvious problems in question.

Important

The Celler-Kefauver Act helped put a stop to previous antitrust rules being evaded keeping a wave of sketchy pre-and post-war consolidation.

The main huge case refering to the Celler-Kefauver Act emerged in 1962 when the U.S. court blocked a merger between Brown Shoe Co. furthermore, Kinney Company Inc. Judges took note of the "the trend toward vertical integration in the shoe business" and concluded that the proposed tie-up took steps to dispense with competition in that market substantially.

Special Considerations

As history has shown, not all vertical and conglomerate mergers were thwarted by the Celler-Kefauver Act. To prevent such transactions from going on, it must be proved that the combination of two companies would altogether reduce competition. Even assuming that clearly this would be the case, a modest bunch of vertical conglomerate mergers actually figure out how to get approved at any rate.

Public companies trading on the stock market are required to illuminate the Department regarding Justice (DoJ) and the Federal Trade Commission (FTC) assuming that they plan to execute a merger that falls under one of these two categories. These government agencies then, at that point, have the power to choose whether to stop a deal from occurring.

However, at times, the DoJ and FTC can be overruled by the courts. Judges could differ that a merger disregards the Celler-Kefauver Act and allow it to go through — just like with General Dynamics Corp's. (GD) acquisition of United Electric in 1974.

Features

• Presented in 1950, it tried to fortify existing antitrust provisions, which in those days simply applied to buying outstanding equity.
• The act focused on asset purchasing and targeted suspicious vertical and conglomerate mergers, assisting with shutting a few existing escape clauses.
• The Celler-Kefauver Act was a law passed by the U.S. Congress in 1950 to prevent hostile to competitive mergers and acquisitions.