The most recent antitrust proposals result in friction losses in mergers and acquisitions on the improper time
Senator Amy Klobuchar speaks at the 2020 Democratic US Presidential Candidate Debate at Saint Anselm College in Manchester, New Hampshire, the United States, on February 7, 2020.
Brian Snyder | Reuters
Mergers and acquisitions (M&A) are increasingly opposed by an increasing number of policy makers in Washington, DC
Last year, some congressmen called for a merger moratorium banning all mergers and acquisitions during the pandemic. In a surprising announcement, the FTC then declared – over the objection of two commissioners – that it would no longer quickly approve the vast majority of transactions reported to the government that could not plausibly reduce competition. Most recently, Senator Amy Klobuchar, D-Minn., Introduced antitrust reform laws that would give the government even more power to block M&A, which she considers problematic.
While these proposals are well-intentioned, they threaten to toss sand into the gears of the economy and cause far more harm than good. Additional friction in M&A activities can block capital markets, reduce innovation and investment, and thwart economic growth. And at exactly the wrong time – when the nation seeks economic recovery during an ongoing global pandemic that has changed the way we work.
Antitrust law has aroused the legislature’s interest in modern memory like no other time. Senator Klobuchar’s legislation is the most ambitious attempt to reform antitrust laws in nearly half a century. A key focus of the bill is to make it even easier for federal antitrust authorities – the Federal Trade Commission (FTC) and the Department of Justice (DOJ) – to interfere in the business of private parties by blocking M&A that they decide on that they affect competition.
Under current law, antitrust authorities must convince a judge that a deal is likely to significantly reduce competition in order to obtain an injunction preventing the deal. The agencies have the burden of proving their case. It wasn’t usually too big a job. Supreme Court Justice Potter Stewart once stated that the only thing related to merger disputes in merger disputes is that the government always wins while considering a government challenge for a small grocery merger and the internal one Complained about contradictions in antitrust law.
In the past few decades, antitrust law has become a more fundamental body of law, with the involvement of business and the emphasis on promoting consumer protection. One thing hasn’t changed though: the government still almost always wins.
Reform advocates would make you believe that the FTC and DOJ appear on a wing and prayer in court and are seldom able to turn the power and credibility of the federal government into victories in merger disputes. But the reality looks different. The government has no problem blocking mergers it believes are problematic. Over the past 20 years, the DOJ and FTC have prevailed in nearly 85% of fusion problems. That’s a record any trial lawyer would envy. And the government win rate only improves when you look at recent cases. In fact, after the DOJ or FTC contest a merger, companies often abandon their deal before trial because the legal standard is so favorable to the government. This even includes successful challenges against deals that include the acquisition of a budding company that doesn’t compete with the acquirer today but could in the government’s view in the future, like the DOJ’s recent success in blocking the purchase of fintech upstart Plaid through visa.
Senator Klobuchar’s legislation would put the thumb on the scales even more in favor of the government. Doing so would lower the legal standard and allow the government to halt any business that even “poses an appreciable risk of a substantial reduction in competition”. It would also create guesswork against large deals that don’t even involve competitors. Most importantly, the legislation turns the traditional burden of proof on its head and requires the defendants to demonstrate that their business can be done. Given the disadvantages companies already face when faced with government opposition, such changes are not warranted unless you believe the government is infallible and should win 100% of their cases.
Greater government discretion in intervening in business would unnecessarily rub the M&A market and reduce the types of investments that have fueled US economic growth, including among the many startups whose founders and investors are in part due to the prospect of new ones and develop innovative products of exit by M&A.
That is not to say that antitrust law cannot be improved. Justice Thurgood Marshall famously noted that antitrust laws are the “magna carta of free enterprise,” which is vital to protecting free markets and promoting economic prosperity. Senator Klobuchar’s legislation rightly provides for increased funding for the DOJ and FTC to ensure antitrust laws serve their purpose. Equally important, however, is that antitrust enforcement does not create excessive regulatory costs that stifle M&A, hinder investment and hinder economic growth.
Jan Rybnicek is counsel in the antitrust practice of Freshfields Bruckhaus Deringer and a Senior Fellow at the Global Antitrust Institute of the Antonin Scalia Law School at George Mason University. The views expressed are his own and do not necessarily reflect the views of any customer or institution.