Introduction
A couple of years ago, the Biden administration initiated a historic crackdown on big mergers. However, this ambitious effort faced opposition from skeptical judges, leading to an unintended consequence – companies becoming unafraid of antitrust agencies’ scrutiny. The latest example of this is the reported merger talks between health insurers Cigna and Humana. If this potential deal materializes, it would create a new industry giant valued at approximately $140 billion. Naturally, such a significant merger would attract scrutiny from the Federal Trade Commission (FTC) and the Department of Justice due to its potential impact on insurance costs and drug prices.
Pushback Against Antitrust Enforcement
In recent months, several companies have demonstrated their willingness to challenge the attempts of FTC Chair Lina Khan to expand the boundaries of antitrust laws and rein in combinations she deems anticompetitive. Notably, we have witnessed merger announcements from prominent players like Exxon Mobil and Pioneer Natural Resources, as well as Chevron and Hess. Furthermore, other noteworthy deals have either closed or made significant progress, such as those between grocers Kroger and Albertsons and drugmakers Amgen and Horizon Therapeutics.
The Fallout of an Aggressive Biden Antitrust Strategy
These megadeals can be traced back to the Biden administration’s aggressive antitrust enforcement strategy. Unfortunately for the administration, judges have been reluctant to support these efforts thus far. In July, a federal judge declined to block Microsoft’s $69 billion acquisition of Activision Blizzard, highlighting that the FTC failed to demonstrate how the deal would harm competition. While the FTC is appealing this decision, it serves as an example of the uphill battle they face. Earlier in the year, a court loss forced the FTC to abandon its attempt to prevent Meta Platforms from acquiring virtual reality start-up Within.
A Shift in Approach
Upon assuming her role in June 2021, FTC Chair Lina Khan emphasized a new approach: filing lawsuits against companies whose deals are anticompetitive, instead of relying on settlements and divestitures. However, the recent developments suggest that this new strategy is yet to establish a strong foothold.
Conclusion
The Biden administration’s plan to curb big mergers and reinforce antitrust laws has encountered resistance from skeptical judges. As seen with the potential merger between Cigna and Humana, companies seem undeterred by the scrutiny of antitrust agencies. This unintended consequence reflects the challenging landscape for antitrust enforcement efforts under the current Biden administration. The future of these initiatives remains uncertain, as businesses continue to push the boundaries of consolidation.
The Changing Landscape of Mergers and the FTC
By Joe Light
Amidst the scrutiny and legal battles surrounding mergers, judges have displayed a newfound willingness to consider a company’s proposed settlement as a determining factor in whether a merger should proceed. This unexpected development has altered the decision-making process for companies, making them more inclined to attempt mergers even in the face of potential opposition from the Federal Trade Commission (FTC).
According to William Kovacic, former chair of the FTC and current law professor at George Washington University, this change in the dynamic was an unintended consequence of the FTC’s approach. By pushing the boundaries of theoretical frameworks and narrowing the possibility for settlements, parties involved in mergers have found a way to respond effectively.
At the recent New York Times DealBook Summit, FTC chair Lina Khan defended her agency’s track record. While acknowledging that setbacks do occur, Khan pointed out that the FTC’s success rate in court is impressive, having only lost twice while preventing numerous mergers through investigations and litigation. Khan expressed satisfaction with the agency’s efforts.
However, the setbacks experienced by the FTC have had an unintended consequence for companies with ample resources. Rather than opting to avoid or drop mergers upon facing opposition from the agency, these companies are increasingly inclined to fight back. This new trend is favorable for banks specializing in mergers, including Goldman Sachs, as well as M&A lawyers. Apart from concerns surrounding antitrust issues, 2023 saw a decline in merger activity due to high interest rates and macroeconomic uncertainties. However, as these concerns subside, deal making is projected to experience a resurgence.
Owen Tedford, an analyst for Beacon Policy Advisors in Washington, highlights the advantages for companies willing to challenge the FTC in court. In general, the FTC has been met with resistance, further bolstering the prospects of those willing to enter into legal battles.
In conclusion, the landscape of mergers and the role of the FTC in regulating them have evolved. The increased willingness of judges to consider proposed settlements has shifted the dynamics for companies, making them more likely to proceed with mergers despite potential opposition. While setbacks occur, the FTC remains steadfast in its efforts. Nevertheless, companies with the resources to fight back have found success in challenging the agency. As the obstacles surrounding mergers diminish, a resurgence in deal making could be on the horizon.
