Coincidentally, America’s trustbusters pledged to review the way deals are reviewed the day Microsoft unveiled its $70 billion takeover of Activision. It highlighted the thoughts of a Justice Department official who questioned whether acquisitions by “already dominant companies” were getting enough attention.
The announcement that the Federal Trade Commission and DoJ could modernize merger review standards included notable specific language on “digital markets”, “multi-sided markets”, “private equity” and “farmers” .
This raises two questions. Are new approaches needed for a new economy? Or should the authorities just use their existing powers more aggressively?
If most mergers and acquisitions do not work out for the shareholders of the acquirers, as many academics have asserted, this would seem to be a natural drag on negotiation. There are few signs of this. Lina Khan, chairwoman of the FTC, noted that 2021 produced record transaction volumes and bank fees. Debt was cheap, stocks were high, and cloak-and-cloak business leaders were emboldened to go for the gold.
The typical “consumer welfare” standard in antitrust reviews is simply to assess whether higher prices result from a transaction. The FTC and DoJ are now thinking more sophisticatedly about whether trading efficiency affects labor and wage markets. They also wonder if new digital business models need to be viewed from a different angle. Large tech groups can benefit from network effects that are inherently anti-competitive, but may not directly inflate usage costs.
The FTC feels comfortable enough with existing law to attempt to take Facebook down in court. It also challenges dominant incumbents such as Procter & Gamble and Illumina to swallow emerging challengers or shrink supply chains.
Investment bankers say that despite record transaction volumes, clients have become more wary of transactions that could upset a Biden administration that has made tackling economic inequality a priority. A comprehensive update to antitrust standards would further chill the M&A industry. For this reason, regulators must be guided by fairness and proportionality, as well as intellectual sophistication, in conducting their review.
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