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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

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Speaker 2: Last year's Supreme Court decision barring universities from using race

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Speaker 2: and admissions has left a lot of open questions about

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Speaker 2: admissions policies that don't explicitly consider race but nonetheless affect

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Speaker 2: a school's racial composition. But on Tuesday, the Supreme Court

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Speaker 2: decided not to step into the fray again, refusing to

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Speaker 2: review a Virginia public high school's use of its admissions

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Speaker 2: policies to achieve more socioeconomic diversity in the student body

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Speaker 2: over the descents of Justices Samuel Alito and Clarence Thomas.

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Speaker 2: Joining me is Audrey Anderson, head of the higher education

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Speaker 2: practice at Bassbarian Simms. So, the high school here claimed

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Speaker 2: that its admissions standards were race neutral. Explain the policy

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Speaker 2: change that led to this lawsuit.

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Speaker 3: Yeah, Jan, there was really no question but that the

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Speaker 3: policy that the high school Thomas Jefferson are called TJ,

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Speaker 3: was using before the change and after the change was

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Speaker 3: race neutral all the time. But the change that happened

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Speaker 3: was that for many years TJ had used a series

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Speaker 3: of entrance tests, which were the major way that they

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Speaker 3: chose students. For admission to the high school, the students

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Speaker 3: had to take something like four different tests, and the

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Speaker 3: school board was looking at data and saw that the

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Speaker 3: students who were going to TJ, who were selected for

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Speaker 3: TJ were not racially diverse. There were not many black

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Speaker 3: or Hispanic students. But also, in fact more importantly probably

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Speaker 3: for the district, they came primarily from only eight of

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Speaker 3: the twenty six middle schools that TJ served. Also, the

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Speaker 3: TJ population did not have very many low income students,

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Speaker 3: so the district was something like twenty three percent students

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Speaker 3: who qualified for free and price meals, and at TJ

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Speaker 3: was something like one percent of students qualified for free

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Speaker 3: price meals. So the board wanted to see what they

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Speaker 3: could do in order to make the population at TJ

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Speaker 3: more diverse in a lot of different ways geographically, racially, socioeconomically,

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Speaker 3: and then also on students who speak English as a

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Speaker 3: second language. So the policy they put in place got

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Speaker 3: rid of the entrance exams. There was still one problem

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Speaker 3: solving exercise students had to do, but the main change

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Speaker 3: was that they allocated seats by middle school, so every

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Speaker 3: middle school got a certain number of seats at TJ,

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Speaker 3: so students were competing with their peers at their middle

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Speaker 3: school primarily, and then after those seats were allocated, there

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Speaker 3: were some seats left over for all applicants who had

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Speaker 3: not gotten in through their middle school process. And in

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Speaker 3: addition to this problem solving exercise, they also looked at

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Speaker 3: some factors, you know, teacher recommendations, grade point average, and

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Speaker 3: they actually raised the grade point average that was necessary

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Speaker 3: in order to apply from a three to zero to

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Speaker 3: a three point five. And then they also looked at

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Speaker 3: what they called experiential factors, which were socioeconomic status, whether

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Speaker 3: the student came from a family that spoke English as

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Speaker 3: their first language, and whether their school was a school

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Speaker 3: that had traditionally not sent a lot of students to teach.

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Speaker 2: So the changes did seem to though, have an effect

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Speaker 2: on the racial composition of the student body. After they

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Speaker 2: went into effect, the percentage of Asian American students dropped

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Speaker 2: from offered admissions, dropped from seventy three percent of fifty

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Speaker 2: four percent. The percentage of Black students grew from no

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Speaker 2: more than two percent to eight percent, the percentage of

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Speaker 2: Hispanic students grew from three percent to eleven percent, and

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Speaker 2: the percentage of white students from eighteen percent to twenty

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Speaker 2: two percent. So it did have an effect on the

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Speaker 2: racial composition of the student body.

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Speaker 3: Yes, and that can be expected. I don't really know

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Speaker 3: in the demographics of the Falls Church area, but we

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Speaker 3: know generally in the United States there's a lot of

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Speaker 3: residential segregation, so people tend to live in neighborhoods by race.

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Speaker 3: So anytime that you choose admissions policy that's going to

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Speaker 3: equalize opportunity across a whole school district, you're likely to

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Speaker 3: get more racial diversity than if you're only getting it

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Speaker 3: from some parts of the district. So by adopting a

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Speaker 3: policy that said, hey, look what we're getting now is

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Speaker 3: students only from these eight middle schools. Let's do something

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Speaker 3: so that we get them from all the middle schools

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Speaker 3: in the county, anyone would expect that that would give

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Speaker 3: you greater racial diversity. It would more match the racial

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Speaker 3: diversity of your district, rather than of just some neighborhoods.

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Speaker 2: The appeals court narrowly divided found the parents group had

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Speaker 2: and established that the board adopted its race neutral policy

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Speaker 2: with any discriminatory intent.

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Speaker 1: Is that the right standard?

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Speaker 3: Yes, I think that everybody agrees to that the right

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Speaker 3: legal standard was used. I think that where the disagreement

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Speaker 3: is is in how they applied and looked at that standard.

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Speaker 3: So the biggest question, and the thing that Justice Alito

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Speaker 3: took issue with, is one of the things that you

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Speaker 3: look at when you're trying to figure out whether a

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Speaker 3: policy that is rased neutral on its base, does it

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Speaker 3: nonetheless violate the equal protection clause? Because because it's racially discriminatory,

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Speaker 3: one of the things you look at is did the

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Speaker 3: policy have a disproportionate impact on one race rather than another?

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Speaker 3: Because if it did, that's one piece of evidence that

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Speaker 3: would show that there might have been racially discriminatory intent.

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Speaker 3: You can't show that violates the equal protection clause just

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Speaker 3: based on that, but that's one important piece of evidence.

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Speaker 3: So the question, though, is how do you determine whether

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Speaker 3: a policy has a racially disproportionate effect. What Justice Alito

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Speaker 3: says you have to do is you have to look

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Speaker 3: at how did that racial group faire under the old policy,

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Speaker 3: and now how do they fare under the new policy.

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Speaker 3: What the Fourth Circuit said and what the school district

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Speaker 3: says is that's the wrong way to look at it.

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Speaker 3: What you have to look at is when you've got

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Speaker 3: two different policies that are both race neutral, you have

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Speaker 3: to just look at the new policy and say, how

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Speaker 3: do different racial groups fair under this new policy. Does

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Speaker 3: this new policy put any barriers based on race? And

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Speaker 3: the Court of Appeal said it doesn't, because even though

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Speaker 3: the percentages of Asians went down under the new policy,

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Speaker 3: Asians as a group, their applications were forty five percent

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Speaker 3: of the application pool and they got fifty four percent

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Speaker 3: of the offers to attend TJ. So that would show

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Speaker 3: that they're not being disproportionately affected based on their race

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Speaker 3: under this new policy. That's the biggest thing that Justice

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Speaker 3: Alito is upset about.

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Speaker 2: And Justice Thomas and Justice Thomas not a surprise because

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Speaker 2: these two are justices who have been consistently anti affirmative action.

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Speaker 3: Right, And I think what's also underlying this and it

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Speaker 3: comes out in the end of Justice Alito's opinion. And

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Speaker 3: if you look at the district court opinion here the

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Speaker 3: trial court judge who found that the policy was unconstitutional,

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Speaker 3: he was very concerned that the school board was talking

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Speaker 3: about racial diversity at all. There is no evidence in

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Speaker 3: the record that any school board member wanted to hurt

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Speaker 3: Asian Americans with the new policy, that they had a

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Speaker 3: goal of lessening the percentage of Asian Americans in the

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Speaker 3: school there's in fact evidence saying that they were concerned

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Speaker 3: that would look like or that they would be hurting

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Speaker 3: Asian Americans, But there's lots of evidence saying that they

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Speaker 3: wanted to increase the diversity. So I'm including diversity by race.

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Speaker 3: But Judge Hilton, the district court judge, said that just

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Speaker 3: the discussion that they wanted to increase diversity by race

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Speaker 3: infected the whole process, and he used that word infected,

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Speaker 3: and Justice Alito uses the same kind of language that

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Speaker 3: it infects things. So the question that some of us

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Speaker 3: were really concerned about with this case is can a

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Speaker 3: governmental body even consider the racial diversity? What the outcome

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Speaker 3: will be of a racially neutral policy on the demographics

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Speaker 3: of something. Is it okay if a school board is saying,

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Speaker 3: if we adopt this policy which is racially neutral, it's

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Speaker 3: going to affect the demographics of our schools in this way?

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Speaker 3: Can they do that now? At TJ As it turns out,

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Speaker 3: actually for the policy that they adopted, they ran no

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Speaker 3: racial statistics. They did not run a simulation of if

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Speaker 3: we adopt this policy, the policy that it adopted, what

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Speaker 3: will the racial demographics of TJ look like. Their folks

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Speaker 3: told them they could not run that simulation because there

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Speaker 3: were two many questions about who would apply or I

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Speaker 3: don't remember what they all were, but they said they

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Speaker 3: couldn't run that. So the choice that was actually made

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Speaker 3: by the school board was made without looking at what

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Speaker 3: the racial demographics would be. Choices they voted down. There

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Speaker 3: were racial simulations run for, but the choice they voted

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Speaker 3: for it approved. No racial simulation was done, which is

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Speaker 3: also part of the evidence here that I think might

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Speaker 3: have made some on the Supreme Court say, you know,

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Speaker 3: even if we were interested in this, this is not

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Speaker 3: really the right case for us to take.

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Speaker 2: What does it tell you that the Supreme Court turned

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Speaker 2: this case away and at the beginning of the month

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Speaker 2: the Court decided to allow West Point to continue using

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Speaker 2: race as an admissions factor.

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Speaker 3: I think that the decisions made by the Court are

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Speaker 3: actually quite different. You know, as we discussed, what they

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Speaker 3: turned away at West Point was emergency relief on a

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Speaker 3: completely undeveloped record. I think that the Court will still

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Speaker 3: be very interested in the West Point case after it

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Speaker 3: makes its way through the whole system. This case they've

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Speaker 3: turned it away and now they will have no chance

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Speaker 3: to review it. It is done, it is on the books.

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Speaker 3: I think that they're turning it away says that they're

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Speaker 3: just not interested in taking it up so quickly after

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Speaker 3: students for fair admissions, and they do want to allow

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Speaker 3: this area of the law to what we say, percolate

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Speaker 3: a little bit. But as I said, this record is

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Speaker 3: not a great record for them to take. If there

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Speaker 3: are some on the court that we know that there are,

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Speaker 3: we know that Alito and Thomas are interested in this question.

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Speaker 3: If there are others who are interested in it on

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Speaker 3: the court, this case I think does not have a

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Speaker 3: great record for it because the policy actually adopted by

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Speaker 3: the school district that's being challenged, they did not run

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Speaker 3: any racial simulations for and because it is not only

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Speaker 3: race neutral, it's completely race blind. They take all the

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Speaker 3: names off of the applications and assign them numbers, so

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Speaker 3: the people making the decisions can't even guess by students'

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Speaker 3: names what race they might be. So the lengths that

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Speaker 3: the school district has gone to to make this really

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Speaker 3: race blind, I think also is another factor that would

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Speaker 3: make some on the Court say this isn't the right

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Speaker 3: case for us to take up.

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Speaker 2: And just remind us what question is left open after

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Speaker 2: the Harvard and North Carolina decisions.

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Speaker 3: Well, I mean, that's the other thing here. This, of

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Speaker 3: course is K twelve, which is different than higher education.

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Speaker 3: So there are a number of questions left open. One

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Speaker 3: of the questions is a question that will be posed

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Speaker 3: by the West Point case, which is are there other

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Speaker 3: interests other than the educational benefits of diversity that the

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Speaker 3: Court may find compelling enough to support the use of race.

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Speaker 3: And in the West Point case, the United States is

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Speaker 3: saying that the military academies have a compelling interest supported

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Speaker 3: by national defense goals that are compelling that support the

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Speaker 3: use of race. But we also have to remember, and

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Speaker 3: this has really gotten me thinking about this, the court

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Speaker 3: in Harvard and North Carolina did not technically over rule Grutterer.

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Speaker 3: It is still on the books that the benefits of

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Speaker 3: diversity in higher education, not K twelve, is a compelling interest. Now,

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Speaker 3: they wrote the opinion in such a way that no

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Speaker 3: college or university can use that interest in order to

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Speaker 3: support the use of race. But if it's still on

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Speaker 3: the books that it's a compelling interest. I think it

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Speaker 3: makes it harder for someone to say it is constitutionally

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Speaker 3: improper for a school board to even talk about what

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Speaker 3: the racial composition of their school is going to be

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Speaker 3: when they use race neutral measures. I think that there

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Speaker 3: are some on the Supreme Court and certainly some advocates

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Speaker 3: who do believe that universities and K twelve schools should

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Speaker 3: just not be able to look at consider what the

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Speaker 3: racial demographics of their classes look like at all. That

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Speaker 3: even to think about that violates the equal Protection Clause.

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Speaker 3: And if it's a compelling interest to have diversity, well

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Speaker 3: then it's hard to say that you can't even see

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Speaker 3: what your race neutral measures will do to achieve that goal.

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Speaker 2: So anti affirmative action groups are testing these restrictions in

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Speaker 2: a lot of different ways. Are they making progress in

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Speaker 2: any particular area or is it too soon?

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Speaker 3: You know, we know that they had the early cases

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Speaker 3: against some law firms for internship programs that were limited

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Speaker 3: to applicants based on their race, and they brought lawsuits

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Speaker 3: and law firms change those programs to open them up

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Speaker 3: to people of all races. So I think that those

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Speaker 3: are some victories, and I think that by just bringing

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Speaker 3: those kinds of lawsuits, it has made institutions in all

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Speaker 3: kinds of fields take a look at their programs to say,

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Speaker 3: are our programs really open to everyone, regardless of their race.

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Speaker 3: We need to make sure that, regardless of what the

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Speaker 3: goals are of our program everybody has to be able

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Speaker 3: to have a place in them. And so I think

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Speaker 3: that even if they haven't had a lot of legal

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Speaker 3: victories yet, they have already made a lot of change

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Speaker 3: in society for how entities are looking at these kinds

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Speaker 3: of programs.

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Speaker 2: More of these cases certainly short. Thanks so much, Audrey.

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Speaker 2: That's Audrey Anderson, head of the higher education practice at

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Speaker 2: Bassbarian Simms. Coming up Mergermania. This is Bloomberg from Capital

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Speaker 2: One's thirty five billion dollar plan to take over Discover Financial,

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Speaker 2: Kroger's twenty four point six billion dollar acquisition of Albertson's

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Speaker 2: to Disney, Fox and Warner's streaming deal. The question is

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Speaker 2: always which deal will survive antitrust scrutiny by federal regulators

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Speaker 2: and which we'll go to court. And it appears the

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Speaker 2: Federal Trade Commission and a group of states are poised

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Speaker 2: to sue as soon as next week to block the

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Speaker 2: tie up between Kroger's and Albertson's. According to Bloomberg sources,

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Speaker 2: the scrutiny seems to come from the top. Remember back

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Speaker 2: in July of twenty twenty one, President Joe Biden signed

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Speaker 2: an executive order directing the federal government to aggressively enforce

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Speaker 2: the nation's anti trust laws.

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Speaker 4: No more tolerance for abusive actions I monopolist, No more

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Speaker 4: bad mergers that lead to mass layoffs, higher prices, fewer

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Speaker 4: options for workers and consumers alike.

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Speaker 2: Joining me to discuss these deals is a leading antitrust expert,

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Speaker 2: Harry First, a professor at.

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Speaker 1: NYU Law School.

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Speaker 2: Harry Capital One and Discover would form the largest US

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Speaker 2: credit card issuer. And I've been reading many legal experts

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Speaker 2: say this will reveal whether regulators are serious about policing

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Speaker 2: consolidation in the financial sector.

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Speaker 5: Do you agree, Well, it shows that they're serious. Well,

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Speaker 5: first of all, they have to examine this, so in

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Speaker 5: that sense they'll be serious. There haven't been very many challenges,

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Speaker 5: I guess to bank mergers. This really isn't a bank merger. Historically,

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Speaker 5: Justice Department and any trust and forces have paid attention

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Speaker 5: to payment systems, particularly to Visa and MasterCard. So I'm

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Speaker 5: not sure test this is the right word. They're being

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Speaker 5: tested in many different areas. But what it may test

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Speaker 5: is whether I think it's the Office of the Controller

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Speaker 5: that has jurisdiction one of the banking regulators, and whether

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Speaker 5: they will stop it because they've been fairly lacked themselves.

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Speaker 5: But even if they don't, the Justice Department can still

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Speaker 5: step in. So yes, I think it will be a

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Speaker 5: test to see how we're going to analyze this, And apparently,

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Speaker 5: at least early views are somewhat split on how this

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Speaker 5: is going to come out in terms of whether it

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Speaker 5: will pass MUSTER after anti trust review.

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Speaker 2: Capital One is arguing that the deal will lead to

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Speaker 2: more robust competition among credit card networks currently dominated as

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Speaker 2: you mentioned by Visa and MasterCard, with American Express and

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Speaker 2: Discover in the mix.

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Speaker 1: There is that a solid argument in this case.

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Speaker 5: This is an argument that often put forward and certainly

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Speaker 5: has been put forward in a lot of cases. Please

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Speaker 5: let us harm competition so that we can help it.

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Speaker 5: It's sort of you have to draw on Vietnam experience

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Speaker 5: when they said we had to destroy that village so

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Speaker 5: we could save it. So the idea that we're going

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Speaker 5: to end competition between these two firms so that there

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Speaker 5: can be more competition is one that any trust people

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Speaker 5: tend to look at skeptically. So the first question is

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Speaker 5: will it lessen competition? And before we get to whether,

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Speaker 5: well it might lessen it in some ways but increase

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Speaker 5: it in others, that's the skeptical argument for any trust,

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Speaker 5: The first question is will it lessen competition at all? Now,

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Speaker 5: this is in credit card issuance, given discovers rather small

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Speaker 5: market share, so you don't get to the justification unless

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Speaker 5: it's harmful in the first place. One thing that seems

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Speaker 5: to me to be true about Discover. Discover has always

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Speaker 5: been sort of the map in some ways. I think

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Speaker 5: we wouldn't have cash back credit cards if it weren't

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Speaker 5: for Discover. So this was Discover's business model when Visa

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Speaker 5: MasterCard weren't doing it. So they've been a sort of

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Speaker 5: competitive upstart. Now how that's going to look to any

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Speaker 5: trust enforcers at the moment, I'm not certain, but that's

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Speaker 5: a little wrinkle in this particular case. Now, it may

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Speaker 5: be that putting those two firms together doesn't in itself

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Speaker 5: raise problems, although I think it probably will in the

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Speaker 5: card issuance market, but that's not the only market. So

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Speaker 5: there are a lot of banks that issue cards, but

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Speaker 5: there are only as you mentioned, four processing networks or

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Speaker 5: really three Visa, MasterCard and Discover, which processes the credit

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Speaker 5: card payments on the merchant side. And this may cause

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Speaker 5: some problems because Discover is an independent process. So I

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Speaker 5: think the Justice Department is going to look at that

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Speaker 5: in terms of payment systems, how it works for processors

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Speaker 5: because merchants pay good money for this, and how this

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Speaker 5: merger will affect that I think is going to be important.

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Speaker 1: I assume that.

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Speaker 2: The Office of the Controller of the Currency and the

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Speaker 2: Federal Reserve looking at different things than the Justice Department is.

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Speaker 5: That's a great assumption. So the banking agencies are supposed

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Speaker 5: to in some ways look at bank stability, convenience, and needs.

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Speaker 5: This doesn't involve depositors because Discovery only has one bank outlet.

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Speaker 5: I think, so, yes, they have some overall responsibility for

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Speaker 5: public interests, but they do apply a competition standard, and

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Speaker 5: one of the questions has always been whether they're applying

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Speaker 5: maybe a more lenience standard. But then the Justice Department

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Speaker 5: can come in and go to court and apply the

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Speaker 5: standard that's applied in all other industries. So that's one

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Speaker 5: of the interesting wrinkles of this, is to see where

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Speaker 5: the banking regulators will be. But then we may get

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Speaker 5: to see where the Justice Department is if they approve

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Speaker 5: the transaction. So there's a lot to be seen yet,

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Speaker 5: you know, in terms of how this will go. But

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Speaker 5: it is a very big deal in dollar terms, and

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Speaker 5: discoverers played an important competitive role, and what they had

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Speaker 5: envisioned for the future, and what you know, capital one's

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Speaker 5: vision for the future might be in all this, I

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Speaker 5: think will be important once the government starts looking at

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Speaker 5: those documents.

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Speaker 2: Okay, let's turn to the next possible Okay, antitrust problem.

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Speaker 2: The Federal Trade Commission and a group of states are

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Speaker 2: poised to sue as soon as next week to block

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Speaker 2: the tie up between supermarket giants Kroger and Albertson.

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Speaker 1: According to Bloomberg source is.

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Speaker 2: The supermarkets here again saying that the deal is needed

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Speaker 2: so that they can better compete with their bigger rivals

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Speaker 2: Amazon and Walmart, and the FTC in the state attorneys

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Speaker 2: general are concerned that it would lead to lower wages

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Speaker 2: for workers, higher prices for groceries.

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Speaker 1: But Walmart and Amazon are rather big.

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Speaker 5: Well they are, of course, A lot of this depends

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Speaker 5: on how you want to think about the market. Amazon's big,

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Speaker 5: But do you consider online sales as being in the

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Speaker 5: same market as grocery store sales? So if you don't,

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Speaker 5: then you're talking whole foods. So that's one wrinkle of it.

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Speaker 5: Walmart is very big, and sometimes in these supermarket mergers

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Speaker 5: firms argue that shouldn't be in the market at all,

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Speaker 5: But they probably look like number one in terms of

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Speaker 5: retail sales of food in physical stores. Of course, they

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Speaker 5: also sell things lawn. Again another wrinkle of this that

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Speaker 5: I think Kroger and Albertsons might pursue in litigation. But

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Speaker 5: however we slice it. Do we slice food mergers, chop

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Speaker 5: food mergers? However we slice the supermarket mergers. These are

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Speaker 5: two of the biggest players. We haven't talked about the

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Speaker 5: warehouse clubs, specifically Costco, which are often in any trust

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Speaker 5: cases not included in supermarket mergers because they're business models

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Speaker 5: so sort of different. So if they aren't, then Kroger

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Speaker 5: and Albertson's are number two in number three in the

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Speaker 5: United States if you include Costco, it's two and four.

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Speaker 5: But in any event, these are the major chains. Now,

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Speaker 5: the idea that they need to consolidate so as to

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Speaker 5: compete with Walmart is another version of we have to

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Speaker 5: kill competition so that we can have competition. Because these

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Speaker 5: chains compete against each other. They are major players, and

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Speaker 5: they compete presumable in many ways for sources, for private

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Speaker 5: sorts of things, and if they say they have to

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Speaker 5: get bigger, it seems factually to perhaps be problematic. So again,

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Speaker 5: as I mentioned before, the first question is is it

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Speaker 5: any competitive? Not what their justification is, So how is

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Speaker 5: it any competitive? Exactly? And even though they're big, a

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Speaker 5: lot of times for supermarkets, enforcers look at local markets,

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Speaker 5: sometimes very small markets, you know, three to five mile

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Speaker 5: radius around stores, which is where most consumers do most

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Speaker 5: of their shopping in most places. How's that I put

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Speaker 5: in plenty of most. So if any of us say no,

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Speaker 5: I don't do it that way, I say, well, other

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Speaker 5: people do. But that's sort of the default way of

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Speaker 5: how it's looked at. So the discussion generally starts out

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Speaker 5: with what are the geographic overlaps between these two chains?

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Speaker 5: And then can that be cured? You know, so sell

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Speaker 5: the overlapping stores. If you've got a safe way right

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Speaker 5: near a Kroger or a Harris Tweeter Teeter, I would

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Speaker 5: say Tweeter Harris.

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Speaker 1: Teeter, I'm not familiar with that.

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Speaker 5: Well in the DC area, these two chains are pretty big,

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Speaker 5: so you know, sell some of the overlaps. So now

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Speaker 5: you're not competitors, you don't you know, sell it to

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Speaker 5: someone else, it will still be in competition. This has

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Speaker 5: been going on since October of twenty twenty two, you know,

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Speaker 5: trying to figure this merger out. So I think a

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Speaker 5: lot of the discussion has been what do we need

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Speaker 5: to sell to satisfy the Federal Trade Commission and to

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Speaker 5: satisfy state attorneys general, all of whom frankly are concerned

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Speaker 5: about and should be concerned about high food prices and

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Speaker 5: wages to labor. So talk about, you know, concerns and

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Speaker 5: concerns for important segments of our economy. This is very important.

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Speaker 5: So a lot of discussion over how many stores to

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Speaker 5: divest and.

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Speaker 2: Harry in the discussions, how many stores have the companies

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Speaker 2: agreed to divest.

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Speaker 5: Apparently there's an agreement now to invest four hundred sum

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Speaker 5: stores to another chain. Called Pigley Wiggly. You always shop

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Speaker 5: at Pickley Wiggly.

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Speaker 2: I definitely don't. But I know from a lot of

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Speaker 2: the movies that I watch about the pin chain.

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Speaker 5: Oh, that's right. Seems to all be in southern movies

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Speaker 5: in the nineteen fifties, yes.

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Speaker 1: And even some more recent movies.

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Speaker 5: So to divest it to them? And people have said, well,

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Speaker 5: you know, if you need to put together your two chains,

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Speaker 5: which are about five thousand stores, so that you can

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Speaker 5: compete effectively, tell me how spinning off one hundred and

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Speaker 5: nineties stores or four hundred stores will recreate effective competition,

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Speaker 5: Because if you can't be effective, you're huge size. How

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Speaker 5: are those chains supposed to be effective? So the question

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Speaker 5: whether you can cure competition defects by spinning off some

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Speaker 5: of the overlapping stores then usually moves on to well,

438
00:28:22,280 --> 00:28:27,600
Speaker 5: those divestitures have often been unsuccessful because the number of

439
00:28:27,640 --> 00:28:32,920
Speaker 5: stores spun off are not enough to form a viable

440
00:28:33,200 --> 00:28:36,919
Speaker 5: chain of stores, even if given to another operator. So

441
00:28:37,560 --> 00:28:41,520
Speaker 5: this is probably what the discussion and argument has gone around.

442
00:28:41,960 --> 00:28:45,720
Speaker 5: And I gather from you know what you mentioned the

443
00:28:45,760 --> 00:28:49,840
Speaker 5: Bloomberg source that they haven't come up with enough of

444
00:28:49,880 --> 00:28:52,760
Speaker 5: a divested your plan, and there may not be a

445
00:28:52,840 --> 00:28:57,280
Speaker 5: divestiture plan that would be satisfactory other than you know,

446
00:28:57,440 --> 00:29:00,880
Speaker 5: you just can't merge. Now, there is one wrinkle that's

447
00:29:01,360 --> 00:29:05,320
Speaker 5: really quite unusual and interesting in this is that two

448
00:29:05,400 --> 00:29:10,520
Speaker 5: state attorneys general have already filed suit. And normally the

449
00:29:10,560 --> 00:29:14,000
Speaker 5: state's file suit under federal law for reasons that get

450
00:29:14,040 --> 00:29:17,800
Speaker 5: to be too complicated to explain, but both of them

451
00:29:17,840 --> 00:29:21,800
Speaker 5: have filed suit under state law in state court, and

452
00:29:21,960 --> 00:29:25,920
Speaker 5: this is quite unusual and will be very interesting to see.

453
00:29:25,960 --> 00:29:29,120
Speaker 5: So that's the state of Washington, state of Colorado. So

454
00:29:29,680 --> 00:29:33,120
Speaker 5: those suits are already filed to stop the merger in

455
00:29:33,240 --> 00:29:36,600
Speaker 5: some way. So the end of the story hasn't been

456
00:29:36,600 --> 00:29:37,560
Speaker 5: written yet.

457
00:29:37,520 --> 00:29:39,720
Speaker 2: But I'm going to ask you about the end anyway.

458
00:29:39,880 --> 00:29:42,680
Speaker 2: So let's assume that the suit is going to go forward.

459
00:29:43,080 --> 00:29:45,280
Speaker 2: Which side has the better odds in court? Do you

460
00:29:45,320 --> 00:29:49,120
Speaker 2: think it sounds like you think the government does.

461
00:29:50,160 --> 00:29:52,040
Speaker 5: I think the government does, but it's going to have

462
00:29:52,080 --> 00:29:55,000
Speaker 5: to be careful about what the theory is, you know.

463
00:29:55,400 --> 00:29:57,880
Speaker 5: I Mean, normally we talk about the number of stores

464
00:29:58,000 --> 00:30:03,080
Speaker 5: and all that, but again, the usual markets that are

465
00:30:03,080 --> 00:30:06,320
Speaker 5: looked at in supermarket mergers are very local. So the

466
00:30:06,360 --> 00:30:09,760
Speaker 5: total number of stores. In some sense, the government usually

467
00:30:09,840 --> 00:30:13,000
Speaker 5: does not focus on They very well might focus on

468
00:30:13,040 --> 00:30:17,920
Speaker 5: the network generally in this merger, on the argument that

469
00:30:18,000 --> 00:30:22,440
Speaker 5: these big networks, these big chains compete in ways that

470
00:30:22,520 --> 00:30:26,280
Speaker 5: are not localized. They haven't pushed this argument in the past.

471
00:30:26,760 --> 00:30:29,960
Speaker 5: It's an important argument, you know, when we think about

472
00:30:30,720 --> 00:30:35,719
Speaker 5: major tech platforms, when we think about competition today, it's

473
00:30:35,760 --> 00:30:39,640
Speaker 5: you know, not localized geographically. So you know, I think

474
00:30:39,880 --> 00:30:43,280
Speaker 5: the parties are not certainly not out of legal arguments

475
00:30:43,800 --> 00:30:47,640
Speaker 5: if they choose to fight it. And there was apparently

476
00:30:47,680 --> 00:30:50,880
Speaker 5: an upper limit on the number of stores divested before

477
00:30:51,600 --> 00:30:55,280
Speaker 5: the parties could pull out. It was six hundred some stores.

478
00:30:56,040 --> 00:30:58,200
Speaker 5: So I think we should try to keep our eye

479
00:30:58,200 --> 00:31:01,920
Speaker 5: on whether the deal will be killed, not so much

480
00:31:02,000 --> 00:31:05,120
Speaker 5: directly but indirectly. But the bottom line is I've always

481
00:31:05,120 --> 00:31:07,560
Speaker 5: found it hard to believe that the government will not

482
00:31:07,640 --> 00:31:10,760
Speaker 5: oppose this. I think they'll come up with some theories

483
00:31:11,320 --> 00:31:15,520
Speaker 5: for why it should be stopped, and I think ultimately

484
00:31:15,560 --> 00:31:18,640
Speaker 5: they're probably going to be successful. But it isn't a

485
00:31:18,760 --> 00:31:20,600
Speaker 5: laydown coming up.

486
00:31:20,920 --> 00:31:24,200
Speaker 2: The new streaming service proposed by Disney, Fox and Warner,

487
00:31:24,520 --> 00:31:27,560
Speaker 2: this is Bloomberg. I've been talking to anti trust expert

488
00:31:27,560 --> 00:31:31,360
Speaker 2: Harry First, a professor at NYU Law School, about several

489
00:31:31,440 --> 00:31:34,760
Speaker 2: megadeals and whether they'll pass anti trust scrutiny.

490
00:31:35,360 --> 00:31:36,920
Speaker 1: So now we go from.

491
00:31:36,840 --> 00:31:42,000
Speaker 2: Credit cards and supermarkets to streaming sports. Right, The Justice

492
00:31:42,000 --> 00:31:46,160
Speaker 2: Department plans to scrutinize the new streaming service proposed by

493
00:31:46,200 --> 00:31:51,120
Speaker 2: Walt Disney, Fox and Warner Brothers over concerns it could

494
00:31:51,160 --> 00:31:56,719
Speaker 2: harm consumers, media rivals, and sports leagues. City analysts estimate

495
00:31:56,800 --> 00:32:00,000
Speaker 2: the venture would control about fifty five percent of UA

496
00:32:00,160 --> 00:32:01,760
Speaker 2: sports rights by cost.

497
00:32:02,600 --> 00:32:06,320
Speaker 5: What about this, This is a fun one. We do

498
00:32:06,440 --> 00:32:09,760
Speaker 5: need food, and apparently we do need credit cards, and

499
00:32:09,840 --> 00:32:11,720
Speaker 5: apparently there are a lot of people who just need

500
00:32:11,760 --> 00:32:15,200
Speaker 5: their sports all the time. I have to say, I

501
00:32:15,520 --> 00:32:20,240
Speaker 5: don't put myself in that category. So here I'm not

502
00:32:20,440 --> 00:32:24,800
Speaker 5: speaking as an interested consumer, just as sort of an observer,

503
00:32:25,560 --> 00:32:30,000
Speaker 5: noting that a lot of anti trust action recently has

504
00:32:30,040 --> 00:32:34,880
Speaker 5: involved entertainment of one sort or another, with video games

505
00:32:35,000 --> 00:32:37,520
Speaker 5: or sports. And so now we're on the sports end.

506
00:32:37,560 --> 00:32:40,080
Speaker 5: And you know, as with many of these things, they

507
00:32:40,160 --> 00:32:44,680
Speaker 5: become important to any trust enforces, particularly because there are

508
00:32:44,720 --> 00:32:47,720
Speaker 5: a lot of zeros at the end of these deals.

509
00:32:48,200 --> 00:32:52,560
Speaker 5: So I means Disney, Fox and Warner. They are major

510
00:32:52,840 --> 00:32:57,720
Speaker 5: distributors of sports programming today, and if you put this

511
00:32:57,880 --> 00:33:01,880
Speaker 5: all in a single streaming service, they would have a

512
00:33:01,920 --> 00:33:07,280
Speaker 5: lot of current sports programming. It wouldn't have everything. Apparently

513
00:33:07,360 --> 00:33:09,640
Speaker 5: there's some people who watch the National Football League. I

514
00:33:09,640 --> 00:33:14,560
Speaker 5: don't know, Taylor, I don't know, right, Yeah, so half

515
00:33:14,600 --> 00:33:21,720
Speaker 5: of the NFL is on comcasts, NBC, Paramount Global, Amazon

516
00:33:21,800 --> 00:33:24,840
Speaker 5: has rights to some games. So it's not a complete

517
00:33:24,840 --> 00:33:27,320
Speaker 5: lock up, but it's it's a fair amount, and you

518
00:33:27,360 --> 00:33:30,280
Speaker 5: don't want to forget that this Apparently this new service

519
00:33:30,360 --> 00:33:33,120
Speaker 5: will have The Simpsons and The Bachelor, so there's going

520
00:33:33,200 --> 00:33:37,600
Speaker 5: to be some entertainment programming. So the question with this,

521
00:33:37,760 --> 00:33:40,480
Speaker 5: as with the others, the first question is so how

522
00:33:40,520 --> 00:33:44,040
Speaker 5: does it harm competition in what way? And here it's

523
00:33:44,160 --> 00:33:50,080
Speaker 5: even less clear because although initial reports sort of sketched

524
00:33:50,080 --> 00:33:53,880
Speaker 5: out with adventures, wasn't a sense that the exact terms

525
00:33:54,560 --> 00:33:58,960
Speaker 5: may not be fully fleshed out. It's hard to say,

526
00:33:59,000 --> 00:34:02,600
Speaker 5: And the Justice Department and is supposed to be saying

527
00:34:02,600 --> 00:34:05,479
Speaker 5: they will review it, but it's not clear exactly what

528
00:34:05,520 --> 00:34:08,480
Speaker 5: they have to review. So the big question is, well,

529
00:34:08,520 --> 00:34:11,520
Speaker 5: you put all this together, but what's the issue. And

530
00:34:11,640 --> 00:34:17,080
Speaker 5: usually in these things. The issue involves exclusivities. So will

531
00:34:17,120 --> 00:34:21,879
Speaker 5: this programming be available only on this app through this

532
00:34:22,080 --> 00:34:27,960
Speaker 5: distribution channel or can it be distributed elsewhere through other

533
00:34:28,480 --> 00:34:33,399
Speaker 5: channels so that it's not tied up? Now, apparently it's

534
00:34:33,440 --> 00:34:37,799
Speaker 5: not supposed to be exclusive, so if your Fox, you

535
00:34:37,960 --> 00:34:42,279
Speaker 5: can also maybe distributed elsewhere. But I'm a little skeptical

536
00:34:42,320 --> 00:34:46,040
Speaker 5: about how that may work in practice or what the

537
00:34:46,120 --> 00:34:50,719
Speaker 5: joint venturer's incentives are. ESPN is supposed to be launching

538
00:34:50,840 --> 00:34:52,080
Speaker 5: a streaming service.

539
00:34:52,160 --> 00:34:55,360
Speaker 2: Yes, Disney still plans to launch a streaming service of

540
00:34:55,920 --> 00:34:57,120
Speaker 2: ESPN in about a year.

541
00:34:57,320 --> 00:34:58,880
Speaker 1: So where does that fit in?

542
00:34:59,480 --> 00:35:04,239
Speaker 5: Well, year is a long time, and so suppose they do.

543
00:35:04,320 --> 00:35:07,200
Speaker 5: But they also have this platform. You know, what are

544
00:35:07,239 --> 00:35:08,760
Speaker 5: their incentives? Who pays?

545
00:35:08,800 --> 00:35:08,920
Speaker 3: What?

546
00:35:09,920 --> 00:35:12,640
Speaker 5: Where do they make the most money? If you can

547
00:35:13,360 --> 00:35:15,760
Speaker 5: get it all in one bundle and you're a viewer,

548
00:35:16,960 --> 00:35:21,320
Speaker 5: you're really going to pay separately for an ESPN streaming channel.

549
00:35:21,840 --> 00:35:23,200
Speaker 5: You know? How is that all about? How do the

550
00:35:23,239 --> 00:35:26,480
Speaker 5: party's envision this is working? So will it be any competitive?

551
00:35:27,120 --> 00:35:29,200
Speaker 5: The parties are going to argue, hey, we add a

552
00:35:29,239 --> 00:35:33,439
Speaker 5: new service. Adding output is usually good. You know, there's

553
00:35:33,440 --> 00:35:37,319
Speaker 5: a new service for consumers, and hey, consumers like having

554
00:35:37,360 --> 00:35:39,960
Speaker 5: a one stop shop. You know, they just sit there

555
00:35:40,400 --> 00:35:44,240
Speaker 5: and watch hundreds of hours of Major League Baseball, National

556
00:35:44,280 --> 00:35:49,680
Speaker 5: Basketball League, National Hockey League, NASCAR, College basketball, all in

557
00:35:49,719 --> 00:35:54,080
Speaker 5: one place and never leave their basements. So what could

558
00:35:54,080 --> 00:35:56,240
Speaker 5: be better? That's a rhetorical question.

559
00:35:57,680 --> 00:36:00,640
Speaker 1: I was going to answer that question right.

560
00:36:01,040 --> 00:36:05,080
Speaker 5: So that's an argument for this is a benefit to consumers.

561
00:36:05,280 --> 00:36:09,360
Speaker 5: But the question is if they get control of monopoly,

562
00:36:09,400 --> 00:36:11,759
Speaker 5: and the end is never beneficial to consumers. If they

563
00:36:11,800 --> 00:36:15,600
Speaker 5: get enough control so that Fox and Disney and Warner

564
00:36:15,680 --> 00:36:19,680
Speaker 5: really aren't distributing on other platforms, does the price of

565
00:36:19,760 --> 00:36:23,320
Speaker 5: the streaming service start going up when they're not faced

566
00:36:23,360 --> 00:36:27,840
Speaker 5: with competition from other services that don't offer this bundle?

567
00:36:28,200 --> 00:36:31,920
Speaker 5: And what about the suppliers of these programs? You know,

568
00:36:32,000 --> 00:36:36,640
Speaker 5: of sports entertainment programming, who can they get bids from

569
00:36:36,680 --> 00:36:38,319
Speaker 5: for their products?

570
00:36:38,360 --> 00:36:38,560
Speaker 2: You know?

571
00:36:38,640 --> 00:36:42,480
Speaker 5: Do they have lots of bidders or very few? So

572
00:36:42,600 --> 00:36:45,880
Speaker 5: if you have fewer bidders, they get less for their rights,

573
00:36:46,040 --> 00:36:50,160
Speaker 5: which means they pay whoever produces these things less. So

574
00:36:50,920 --> 00:36:54,560
Speaker 5: you know, not clear how this will all go. And

575
00:36:54,600 --> 00:36:59,240
Speaker 5: in some sense, if the pro competitive benefit is putting

576
00:36:59,280 --> 00:37:01,080
Speaker 5: everything in a bundle, why does it have to be

577
00:37:01,120 --> 00:37:03,920
Speaker 5: in a bundle. I mean, is it really that hard

578
00:37:03,960 --> 00:37:07,399
Speaker 5: to switch from ESPN to Fox? I don't know. That's

579
00:37:07,440 --> 00:37:12,680
Speaker 5: what we like, competition for the different channels that different platforms,

580
00:37:12,719 --> 00:37:15,680
Speaker 5: different apps, whatever you want to call them, can offer

581
00:37:16,040 --> 00:37:19,960
Speaker 5: different product, not just the game itself, but different things

582
00:37:20,040 --> 00:37:23,160
Speaker 5: different you know. However, they want to differentiate themselves to

583
00:37:23,239 --> 00:37:26,600
Speaker 5: compete for customers, So there's a lot to find out

584
00:37:26,600 --> 00:37:30,000
Speaker 5: about how they've structured it and how exclusive it is,

585
00:37:30,040 --> 00:37:34,200
Speaker 5: either on paper or financially. There are past cases in

586
00:37:34,239 --> 00:37:40,719
Speaker 5: this industry where the Justice Department has not looked favorably

587
00:37:40,800 --> 00:37:46,319
Speaker 5: on tie ups of distributors with rights to programming who

588
00:37:46,360 --> 00:37:49,600
Speaker 5: are big in the distribution market. Those go back to

589
00:37:49,640 --> 00:37:53,160
Speaker 5: the eighties. There was in fact litigation over one of

590
00:37:53,200 --> 00:37:55,880
Speaker 5: them where this is way back in the early days

591
00:37:55,920 --> 00:38:00,400
Speaker 5: of what used to be called PayTV. Columbia Universe Versal,

592
00:38:00,480 --> 00:38:04,359
Speaker 5: Paramount and Fox put together a service that would have

593
00:38:04,400 --> 00:38:07,040
Speaker 5: all of their movies and it was going to be

594
00:38:07,080 --> 00:38:10,440
Speaker 5: called Premiere and you know, consumer could get it all

595
00:38:10,480 --> 00:38:13,680
Speaker 5: in one bundle and they would have those movies for

596
00:38:14,320 --> 00:38:18,200
Speaker 5: exclusive window for nine months and other services could get it.

597
00:38:18,480 --> 00:38:22,319
Speaker 5: Justice Apartment sued and one in court that that was

598
00:38:22,360 --> 00:38:25,960
Speaker 5: a violation of the Shermanac. So there are you know,

599
00:38:26,080 --> 00:38:29,640
Speaker 5: legal roadblocks to this, and you know, again we'll have

600
00:38:29,719 --> 00:38:32,960
Speaker 5: to see how here. This is a little more you know,

601
00:38:33,280 --> 00:38:36,880
Speaker 5: uncertain what the terms are and you know, sort of

602
00:38:37,080 --> 00:38:42,320
Speaker 5: see how the terms are crafted and what objections the

603
00:38:42,440 --> 00:38:43,680
Speaker 5: Justice Department might have.

604
00:38:44,080 --> 00:38:45,520
Speaker 1: So Parry, is it just me?

605
00:38:45,920 --> 00:38:48,799
Speaker 2: We talk a lot about antitrust and it seems like

606
00:38:48,920 --> 00:38:53,600
Speaker 2: there's one deal after the next that the Justice Department

607
00:38:53,719 --> 00:38:57,560
Speaker 2: or the FTC is challenging or thinking of challenging. Is

608
00:38:57,600 --> 00:39:00,560
Speaker 2: it just because the Biden administration is on a pro

609
00:39:00,600 --> 00:39:01,840
Speaker 2: competitive bend.

610
00:39:02,040 --> 00:39:06,040
Speaker 5: Yeah, it is very interesting. I mean in the merger area,

611
00:39:06,200 --> 00:39:09,399
Speaker 5: people have suggested that the rhetoric of the Biden administration

612
00:39:09,920 --> 00:39:13,480
Speaker 5: will discourage firms from merging because they're so afraid of

613
00:39:13,600 --> 00:39:18,480
Speaker 5: being challenged. You might wonder about that idea given all

614
00:39:18,480 --> 00:39:21,520
Speaker 5: the mergers we're seeing. So we're seeing a lot of

615
00:39:21,560 --> 00:39:25,200
Speaker 5: deals right now, and there are various reasons. Anti trust

616
00:39:25,239 --> 00:39:27,560
Speaker 5: may be far down on the list, business reasons may

617
00:39:27,560 --> 00:39:30,720
Speaker 5: be higher up. But I think we're seeing it, as

618
00:39:31,239 --> 00:39:34,120
Speaker 5: you know, the anti trust frame around it because the

619
00:39:34,160 --> 00:39:38,200
Speaker 5: Biden administration has been serious, not only in its rhetoric

620
00:39:38,280 --> 00:39:43,080
Speaker 5: but in bringing cases that investigating, so you know that continues,

621
00:39:43,920 --> 00:39:47,400
Speaker 5: and you know there is an expectation that they're not

622
00:39:47,480 --> 00:39:50,120
Speaker 5: just going to let things slide. So we do get

623
00:39:50,160 --> 00:39:53,840
Speaker 5: these reports and there are lots of industries there. You know,

624
00:39:53,960 --> 00:39:58,480
Speaker 5: there's acquisitions in the chip industry, there's energy mergers, a

625
00:39:58,560 --> 00:40:02,680
Speaker 5: lot of consolid the energy industry. I mean, you know,

626
00:40:02,840 --> 00:40:04,319
Speaker 5: I don't know when they sleep.

627
00:40:05,320 --> 00:40:07,799
Speaker 2: Well, at least we'll have lots to talk about and

628
00:40:07,880 --> 00:40:11,160
Speaker 2: I always enjoy our conversations. Harry, thanks so much. That's

629
00:40:11,239 --> 00:40:14,560
Speaker 2: Professor Harry First of NYU Law School. And that's it

630
00:40:14,640 --> 00:40:17,600
Speaker 2: for this edition of the Bloomberg Law Podcast. Remember you

631
00:40:17,600 --> 00:40:20,319
Speaker 2: can always get the latest legal news by subscribing and

632
00:40:20,400 --> 00:40:23,960
Speaker 2: listening to the show on Apple Podcasts, Spotify, and at

633
00:40:23,960 --> 00:40:26,960
Speaker 2: Bloomberg dot com, slash podcast, Slash Law.

634
00:40:27,280 --> 00:40:29,960
Speaker 1: I'm June Grosso and this is Bloomberg