The Obama administration has earned a reputation for being tough on big mergers and acquisitions by scuttling deals between companies such as AT&T and T-Mobile, Anheuser Busch InBev and Grupo Modelo, and Nasdaq and the New York Stock Exchange. But is that reputation really deserved? In InsideCounsel’s May cover story, experts break down trends in merger enforcement by the antitrust agencies and weigh in on whether the current administration has paid special attention to M&As.
Is the Obama administration especially tough on mergers?
Despite numerous media reports to the contrary, experts say that although merger challenges have risen under the Obama administration, the increase is not particularly dramatic. The number of challenges was unusually low during George W. Bush’s presidency: The ratio of enforcement actions to merger filings was 0.75 percent and 0.9 percent in Bush’s first and second terms, respectively, according to the Stanford Law Review.
During President Obama’s first term, that ratio rose to 1.5 percent—a significant increase over the Bush years, but still less than the 1.8 percent long-term average since the beginning of the Reagan administration.
What is the administration’s record on challenging M&As?
Experts say that both the Department of Justice (DOJ) and Federal Trade Commission (FTC) have increased their litigation staffing, giving them more confidence when challenging deals. In 2011 alone, the DOJ successfully blocked big mergers between H&R Block and TaxAct, Nasdaq and the New York Stock Exchange, and AT&T and T-Mobile. And it continued the trend in 2013 by challenging Anheuser-Busch InBev’s attempted acquisition of Grupo Modelo, reportedly requiring concessions before the deal could proceed.
The FTC, on the other hand, has been less consistent when it comes to winning M&A challenges, losing three of its cases in 2011 alone. But lately it has seen more success, especially when it comes to the healthcare and pharmaceutical industries. On Feb. 19, for instance, the Supreme Court ruled in favor of the agency in the hospital merger case FTC v. Phoebe Putney Health System Inc.
What about challenges to completed mergers?
One area in which the government has not been afraid to pursue challenges is that of consummated transactions. Under the Bush administration, the DOJ and FTC challenged a total of 18 completed mergers, while between March 2009 and March 2012, the FTC alone challenged nine completed mergers. This trend could spell bad news for companies, since undoing a completed deal is more expensive and time-consuming than scuttling a merger midway through.
“There is a trend of increased focus on these types of transactions, both investigating them and challenging those that are anti-competitive,” says Peter Guryan, a Fried Frank partner who formerly worked in the DOJ’s Antitrust Division. “The antitrust authorities do not draw any lines in terms of the size of the transaction, and indeed have challenged $5 million transactions.”
What steps should companies take to avoid merger challenges?
Companies should plan well in advance for the possibility of government scrutiny, and take the following steps to minimize or avoid complications:
- When structuring deals, allow extra time for potential government review and negotiations
- Consider negotiating deal protection that allows for remedies—such as divestitures—if the government is likely to argue that a given merger will decrease competition.
- Weigh the likelihood of antitrust scrutiny when negotiating breakup fees, or risk ending up like AT&T, which paid $4 billion to T-Mobile when a proposed merger between the two collapsed
- Draft business documents carefully, as if a government lawyer might one day try to use them as evidence against your company