An Interpretation of the Use and Meaning of the Probability of Entry in Market-Extension Merger and Acquisition Cases Involving Probable Future Competition

Abstract

The concepts of potential and future competition¹ in market-extension merger and acquisition cases implicitly require bank regulators, the Department of Justice, and the courts to assign a probability to independent de novo or foothold entry into the market of the acquired bank. In the landmark Mercantile Texas Corporation (Mercantile) decision (1981), the Court stated that it was insufficient to declare that Mercantile had a high probability of independent entry into the E1 Paso or Waco, Texas, markets simply because it was an applicant for entry by merger.² The Court further suggested that a “reasonable” probability of independent entry over a given horizon was one that was greater than a 50–50 chance of entry (i.e., probability of 0.5). Based on this opinion, for the Court to uphold a probable future competition case, a reasonable argument must be made that an acquiring bank holding company (BHC) will exhibit a 50–50 chance or better of independent entry after denial.