Tougher trustbusting will last beyond US election
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jonathan Guilford
NEW YORK, July 3 (Reuters Breakingviews) -Many acquisition strategies hinge on the upcoming U.S. election. Aggressive efforts against corporate consolidation under President Joe Biden have stopped and deterred a lot of M&A activity. Some of these policy efforts probably would be undone by a different administration, clearing the way for fresh attempts at dealmaking. Much of the agenda, though, will endure.
In a few short years, Jonathan Kanter, the U.S. Department of Justice’s trustbuster-in-chief, and Lina Khan, who chairs the merger-policing Federal Trade Commission, have altered the landscape by reversing decades of permissive policy. Their approach, although welcome in some corners, has not been universally applauded. Republicans and Democrats alike have criticized them for pushing the boundaries of applicable law. Courts have thwarted some initiatives.
There also has been an uncommon meeting of the minds. Some Republican legislators openly backed Khan. Even the Heritage Foundation, a fount of Republican Party orthodoxy, supports Team Biden’s lawsuit against technology titan Apple AAPL.O.
The stakes are vast. Costs of everything from concert tickets to mobile apps to peanut butter turn on enforcement efforts. Policy determines just how much pricing power companies have over customers, suppliers and workers.
The Sherman and Clayton acts that underpin U.S. merger enforcement are more than a century old and were applied rigorously into the 1960s. In Khan’s telling, legal scholar Robert Bork ushered the era to an end by championing a focus on narrowly measurable harms to consumers. The question now is whether the latest crusade will be a footnote in the annals of antitrust history, or a lasting change of course.
Kanter and Khan have harked back to Louis Brandeis, an anti-monopoly Supreme Court justice who in the 1930s railed against what he called the “curse of bigness.” Despite pockets of comity over reviving the school of thought, neither its popularity nor its success should be overstated. A contentious run-to-the-courthouse strategy has failed on numerous occasions, and sometimes painfully.
In trying to stop insurance giant UnitedHealth UNH.N from buying Change Healthcare, Kanter’s crew pursued an unusual argument about the harms of accumulating data on patients and rivals, even as the companies proposed a divestiture to nix any direct overlap. A judge sided with United and excoriated the DOJ. Anticipating a similarly tough loss in another case, the agency relented with a settlement. The consequences linger in a lower legal bar for companies to hurdle.
Other attempts to expand antitrust doctrine have sputtered, too. A judge dismissed buyout shop Welsh Carson from a lawsuit against the dominant Texas anesthesiology practice it backs, undermining fledgling efforts to target private equity firms. The Republican Party faction that rejects neo-Brandeisian notions has attacked such losses with gusto. The House of Representatives recently voted to reduce the DOJ’s already-meager annual antitrust funding by nearly a fifth, to $193 million.
In terms of caseload volumes alone, the DOJ and FTC have not been especially active either. Granted, the number of deals arriving at the agencies has spiked, with more than 3,000 flagged in both 2021 and 2022, up around 50% from most of Trump’s term. Nonetheless, both the number of in-depth investigations of deals and challenges to them, as a percentage of those designated for scrutiny, peaked during President Barack Obama’s administration, according to an analysis conducted by Diana Moss at the Progressive Policy Institute.
These simple counts miss the impact, however. The share of mergers that companies are abandoning or restructuring rose during Biden’s first two years. One reason is clear. Kanter and Khan have signaled they don’t want to let deals proceed simply by tweaking their terms. More rigorous probes also naturally lead to more threatened court challenges – and more cold feet from would-be acquirers.
A hostile climate is as much a deterrent as any change in the law, raising implicit deal costs. The most important shift has been in what the agencies consider problematic. A rulebook released last year elaborates on how they analyze mergers. Nearly half the case law cited predates 1979, the year Khan identified as the Bork-inspired turning point.
The new guidelines are far-reaching. Nudging market share above 30% automatically raises red flags, for example. A long-time focus on determining which carefully calibrated submarket is affected can be set aside if the companies involved are direct rivals. Skepticism about vertical mergers, or suppliers uniting with their customers, is elevated. Rollups, a nod to private equity’s practice of combining multiple businesses in the same industry, draw new scrutiny. And potential harm to workers gets as much consideration as any that threatens consumers.
This is a genuine, albeit fraught, break from the past. In practical terms, though, there is often surprising consensus. At the FTC, where members of both parties decide cases, then-Republican Commissioner Christine Wilson blasted Democrats for relying on a legal standard she said doesn’t exist even as she voted with them against gene sequencer Illumina’s ILMN.O plan to buy Grail, which makes cancer tests. Republicans similarly backed a recent case against handbag makers Tapestry TPR.N and Capri CPRI.N, which leaned on a panoply of novel theories.
There have been significant legal victories, too. In siding with the FTC’s lawsuit against a proposed acquisition of online advertising company Propel Media, a court explicitly endorsed the 30% market share threshold. The DOJ’s case against a book-publishing merger broke legal ground that could help spotlight harms to workers elsewhere.
Those findings will empower future trustbusters. Yes, Republicans are likely to let unique competition theories gather dust. And there’s every chance the DOJ and FTC under Trump would embrace settlements again.
Consequences could extend to other areas, too, like Biden's signal project to shrink Big Tech by suing Alphabet GOOGL.O, Amazon.com AMZN.O, Apple and Meta Platforms META.O. After Bill Clinton ceded the Oval Office to George W. Bush in 2001, the government abandoned efforts to break up Microsoft MSFT.O. Something similar could happen if Biden gives way to Trump. Then again, it was Trump’s enforcers who initiated a lawsuit to split Meta.
The public also fears the curse of bigness. About two-thirds of Trump supporters say corporations have too much power, a recent Pew Research Center poll indicates, while support for antitrust law is broad-based, YouGov surveys have found. And a host of procedural changes, including revisions to what information merging companies must hand over to agencies, is likely to move ahead. Another four years under Biden would further entrench a doctrine of constraining companies from abusing their size. Regardless of who wins November’s election, though, an era of tougher trustbusting is here to stay.
The FTC and DOJ are seeing more court setbacks https://reut.rs/3xqJ3sx
Deal challenges spiked under President Obama... Deal challenges spiked under President Obama... https://reut.rs/3VGQRhB
...but more deals are now being abandoned ...but more deals are now being abandoned https://reut.rs/3RLbKr1
New merger guidelines highlight old case law https://reut.rs/4cqb3vs
Editing by Jeffrey Goldfarb and Sharon Lam
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