INTRODUCTION When a firm continues credit to a competitor.

INTRODUCTION

When a firm continues credit to a competitor, or a bank or an investment foundation holds debt in two or more competing firms, the question arises whether these investments are likely to substantially decrease competition or unreasonably restrain trade. Conceivably, the lender could exploit its contractual position to exercise rule over the borrower and/or to gain access to the borrower's confidential information. In addition, holding a financial interest in the debtor might create an incentive for the creditor to unilaterally raise prices following the investment or enable the creditor, the debtor, and other firms in the industry to engage in coordinated interaction that harms consumers

This Article examines whether misdoing investments are, in fact, likely to bring into being meaningful anticompetitive effects of that nature.1 Taking comparable minority equity investments as a benchmark, the answer is chiefly negative. Unlike partial ownership, sin investments do not significantly mould the investor's incentives to contend and are largely ineffectual as commitment devices.2 With notice to corporate control and information exchange, the answer be pendents on the financial condition of the target. As drawn out as the borrower is menstrum (and, as a consequence, has viable refinancing options), the creditor's influence will generally not be meaningful. However, one time the creditor can accelerate the loan and thereby cause the borrower's bankruptcy, the creditor's de facto influence throughout the target increases significantly and may level exceed the influence conferred according to comparable equity investments (unless the creditor eliminates competitive regards by making its debt investment passive). Based upon these findings, this Article approves deferential treatment of most offence investments in competitors under the federal antitrust laws. Unles the investment has certain clearly defined features that permit an inference of probable competitive harm and the creditor refuses to eliminate so concerns, debt investments are presumably efficient.

The discussion below is organized as follows: Part I outlines a framework of analysis that has luckily been applied to equity investments. Part II continues the equity framework to the competitive analysis of transgression investments, with a special focus forward the use of debt as a commitment device to enable collusion. Part III discusses the treatment of liability investments by the courts. Part IV summarizes the tonic findings and concludes with policy recommendations.

I. COMPETITIVE consequences OF PARTIAL OWNERSHIP

In a typical minority investment case, company A acquires a noncontrolling equity stake in its competitor, company B That acquisition may be challenged subject to ?§7 of the clayton Act ("?§7") which applies to the acquisition of any part of the stock or the assets of a company.3 In assessing whether the acquisition is likely to substantially be reduced competition, courts and agencies have focused forward the target, specifically, whether post-acquisition, A would be able to exercise have charge of over B's competitive decisions; and/or whether A would gain access to B's confidential business information.4 solitary recently has there been an increased emphasis forward how investments in a competitor might change the competitive behavior of the investor.5

A. consequences on the Target

The theories of anticompetitive harm from acquiring corporate direct and information access are straightforward. As a shareholder, A can sabotage the target [i]or[/i] part of to the other strategic voting at the shareholder meetings, designation of hostile directors, shareholder lawsuits (the expenses of which would be borne mainly by dint of the other shareholders), abusive information suits etc.6 The significance of A's influence hangs among other things, on the size of its stake in B in absolute spells and relative to the other shareholders; the concentration of the market; and whether B is a private or a public company. As a practical matter, passive investments of les than 15% have rarely been challenged in court, whereas shareholdings sufficient to designate at least single in kind director have been subject to intense litigation subordinate to both the federal antitrust laws and state corporation laws. The shareholder/director gate not only is of obvious importance for the exercise of corporate have the direction of but also changes the nature of the investor's access to sensitive information of the target.7

A shareholder has a used by all law right, based on its beneficial ownership of corporate assets, to inspect "the main division s of his corporation at a exact time and place and for a accurate purpose."8 The scope of the shareholder's inspection right is broad and encompasses the list of shareholders, board minutes, financial records, sales journals, invoices, contracts, correspondence, sales projections and business plans.9 The main qualification of the right to access is the righteous faith or proper purpose requirement, pursuant to which the company may declare to be untrue a request for access if the shareholder's objects are either unrelated to its interest as an investor or inimical to the corporation. Among the improper intentions are harassment, blackmail, and the aid of a competitor.10 With regard to the latter, the lake fact that a shareholder is a competitor (or a shareholder of a competitor) does not defeat the right to information access,11 uniform though it may limit the space of, or require the imposition of conditions immediately after the inspection.12 Only where the shareholder's primary aim is to obtain competitively sensitive information to harm the corporation and to aid a competitor may the company abjure access to its books and records.13 The shareholder may enforce its information right by means of the state courts (traditionally by way of writ of mandamus) if the corporation refuses to comply with a convenient demand for access.14