Daily Management Review

Dealmakers Struggle With An Unparalleled US Resistance To Mergers


Dealmakers Struggle With An Unparalleled US Resistance To Mergers
Under US President Joe Biden, investment bankers and deal lawyers accustomed to regulatory obstacles to their mergers face an unprecedented challenge from antitrust watchdogs who are unfazed when they lose such legal battles.
According to a Reuters analysis of announcements from the agencies, the U.S. Justice Department and Federal Trade Commission (FTC) have attempted to thwart 22 mergers since Biden took office in January 2021.
According to a Reuters analysis, that number exceeds the antitrust lawsuits filed during the first two years of former President Barack Obama's first term in office and is double that of Donald Trump's first two years in office.
Joel Grosberg, an antitrust attorney at McDermott, Will & Emery LLP, claimed that more mergers are currently involved in U.S. antitrust litigation than at any other time in his 25-year career, despite the lack of comprehensive data going back decades.
"It's a combination of the FTC and (Justice Department) being willing to litigate and the fact that companies are fighting back," Grosberg said.
As a result of companies giving up and walking away from their agreement, the regulators were able to halt 15 out of the 22 deals without much of a fight in court. More recently, despite appealing two of the cases, they failed in four court battles to stop mergers. The regulators' enthusiasm for challenging mergers has not been diminished by these losses. FTC Chair Lina Khan and DoJ Antitrust Chief Jonathan Kanter, two of Biden's appointees, are pushing forward with their claims that corporate consolidation has gone too far and is harming consumers and workers at a time of high inflation.
"Without question, what is clear about this team compared to their predecessors is that they are not haunted by the possibility that they might lose these cases," said former FTC chair and George Washington University Law School antitrust professor William Kovacic.
According to Kanter, his department would "not back down from bringing meritorious cases," he told US lawmakers in September. Khan informed Senator Elizabeth Warren in a letter that she thought asset sales to address competition issues with mergers frequently fell short.
An FTC spokesperson pointed Reuters to recent remarks Khan made in her congressional testimony in September regarding the effects of prior consolidation and the requirement for stronger enforcement in response to a request for comment.
There was no comment on the issue from the Justice Department.
Activision Blizzard Inc.'s acquisition by Microsoft Corp. for $69 billion is the current deal with the highest stakes.
The FTC has filed a lawsuit to stop it, claiming that doing so would give Microsoft's Xbox exclusive access to Activision games and position it to rule the gaming industry. In an effort to counter, Microsoft last week told a judge that the deal would be advantageous to both gamers and gaming companies.
Deals are taking longer to be approved, forcing businesses to "dribble the ball" and "delay engagement on potential transactions" until the regulatory environment is clearer, according to Cary Kochman, global co-head of M&A at Citigroup (C.N). The Microsoft-Activision deal did not include Citigroup as a consultant.
Bankers and attorneys advise merger partners to get ready for protracted legal disputes with regulators. To account for the potential for antitrust lawsuits, they are pushing for contracts with longer completion times.
"As you're negotiating things like interim operating covenants that govern what you can and cannot do between signing and closing, you should view them through the lens of having to live with them for 12 to 18 months in some cases," said Melissa Sawyer, global head of the M&A group at law firm Sullivan & Cromwell.
Break-up fees, which acquirers agree to pay their targets in the event that their deal is rejected by antitrust authorities, are also increasing. According to Refinitiv, this year's U.S. total of $22.6 billion represents 4.6% of deal value, which is the highest percentage since the first eight months of 2013, when dealmakers were concerned about Obama's antitrust enforcement.
Due to the Justice Department's and FTC's four court losses, many companies facing merger challenges assert that they will continue to fight. Among them are legal actions to block the $8 billion purchase of Change Healthcare by health insurer UnitedHealth Group Inc. and the $7.1 billion acquisition of Grail by life sciences company Illumina Inc.
"For the vast majority of deals, when we assess them from an antitrust perspective, we as advisors believe those deals can get done," said Edward Lee, corporate partner at law firm Kirkland & Ellis.