US merger freeze unlikely, but Congress could push back timelines

The call for a merger moratorium due to the novel coronavirus pandemic likely won’t become law, but congressional action to delay review timelines or make other more limited tweaks could find more bipartisan support in Congress.

The freeze proposal is the latest rift between antitrust traditionalists and reform-minded progressives whose ideas may gain more traction in a Democratic administration. Then, as now, changing the law is likely to require broader political support.

As lockdowns began in March, different ideas emerged from antitrust enforcers for potential congressional action on mergers.

US Federal Trade Commission Democrat Rohit Chopra said Congress should “stop the shot clock” on deals during the national emergency so that enforcers have enough time to investigate and challenge bad transactions. Meanwhile, the Justice Department asked Congress for extended merger-review timelines, it’s understood. Politico first reported the DOJ request.

Since then, House antitrust panel Chairman David Cicilline said he will push for a freeze in the next legislative package responding to the pandemic, and Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez proposed a bill to halt “risky mergers and acquisitions” until the FTC unanimously determines that consumers, small businesses and workers are no longer under severe financial distress.

Deals blocked by the bill would include those involving private equity firms, companies with more than $100 million in revenue and deals that meet the current Hart-Scott-Rodino Act reporting threshold.

Split perspectives

Supporters believe the ban would include benefits such as allowing the agencies to reallocate resources to conduct cases and ensuring that deals don’t slip through the cracks during a difficult time for enforcers.

Critics say a wholesale ban would stop deals that raise no concerns but would help the struggling economy and could hinder deals needed to save failing companies. Most mergers, they say, are competitively benign. Only 2.2 percent of deals filed with the agencies in fiscal year 2018 got a deeper probe, and far fewer were challenged.

Chopra told MLex in a statement yesterday that most deals by big companies and private equity firms would “actively impede our economic recovery.” Rather than buying other businesses and growing their market share, he said, firms should rebuild and grow the economy.

“Rent-seeking behavior doesn’t expand our economy, it gives big companies the power to profit more while paying and producing less," he said. "We are witnessing in real time the ineffectiveness of prioritizing efficiency as the lodestar of competition policy. Decades of mergers and acquisitions have undermined our resiliency by shaving away the buffer we need to respond to and recover from this crisis. The last thing we need is more killer acquisitions that squash the next big idea to grow our economy, or ‘synergies’ that add more layoffs to our eye-popping unemployment numbers or move more production overseas.”

Democratic FTC Commissioner Rebecca Slaughter told MLex yesterday in a statement that the agency “must strongly enforce the antitrust laws, pandemic or no pandemic.”

“But there are some merger and acquisition concerns that our current antitrust laws may not allow us to reach,” she said. “I strongly support efforts to think more broadly about economic policy and resiliency and to prohibit abusive and opportunistic acquisitions during this pandemic.”

Meanwhile, Republican FTC Commissioner Noah Phillips has been vocal in opposing a freeze, saying merger activity has already dropped, agency operations continue and mergers “have an important role to play when the economy adjusts.”

FTC Chairman Joe Simons declined to comment on the proposal for a freeze or the possibility of delaying timelines. DOJ antitrust chief Makan Delrahim didn't immediately provide comment on the proposed ban.

FTC Republican Christine Wilson said in a statement that the agency is continuing its important business and hasn’t lowered its high standards. The FTC also is not “categorically rejecting deals that may be competitively benign,” she said, adding that procompetitive deals can help companies avoid bankruptcy, and saving jobs is critical now.

The Premerger Notification Office estimates that in the last month compared to the historical average, reported deals have fallen off by nearly 60 percent. Wilson said those calling for a ban mistakenly believe the FTC has been overwhelmed by merger notifications.

“This gap between rhetoric and reality suggests that proposals to block mergers based on the size of the acquiring company are not a good-faith effort to save small businesses, but rather an attempt to use the tragedy of this pandemic to push a pre-existing agenda of halting mergers of a certain size, or in particular industries, or by private investors, without regard to whether those mergers harm consumers,” she said.

FTC Competition Bureau Director Ian Conner said this month that the agency has quickly made accommodations and taken 15 public actions since the end of last year.

A failing firm exception

Cicilline’s proposal would ban deals except where companies are truly failing or in bankruptcy. It’s not clear if the Warren and Ocasio-Cortez bill contains a similar exception.

This week in the UK, the hit from the crisis was enough for the Competition and Markets Authority to green-light Amazon’s investment in restaurant business Deliveroo, with the CMA accepting a defense that Deliveroo otherwise would have quit the market.

The CMA published guidance making clear that the case was an outlier, but the agency nevertheless had the flexibility to permit the deal.

In the 2008 financial crisis, some deals were fast-tracked for banks on the brink of collapse.

Northeastern University economist John Kwoka said large deals routinely take a long time as it is, and any risks from too cursory a review of an anticompetitive deal would be higher than any impact from a freeze. With an exception in place for companies in dire straits, Kwoka said a freeze would “preserve the integrity of the merger review process and not really harm or handicap the companies.”

Alternative ideas

The DOJ’s request for more time is the kind of idea more likely to gain momentum on the Hill than a wholesale ban. The agencies are already asking companies for extended timing agreements, but some deadlines such as the initial review period are statutory.

Other potential legislative tweaks could include allowing the agencies to obtain quick preliminary injunctions to stop deals while they finish investigations, or limiting how companies use bailout money.

Michael Kades, who spent 20 years as an FTC litigator and served as antitrust counsel to Minnesota Senator Amy Klobuchar, said if there is a concern that corporations will take bailout money to acquire technology and assets from weakened competitors, there is a way to fix that.

“They could just put restrictions on the next round of money, requiring companies that take government funds to either pay it back or wait some period of time before they engage in acquisitions," Kades said. "We’re not giving out money to spur consolidation.”

Beyond the substantive ideas, the debate demonstrates just how wide the chasm is between people concerned that enforcement has been too permissive and an antitrust establishment that chafes at the idea that the long-standing and mostly bipartisan approach to merger review needs a wholesale rethink.

If presumptive Democratic presidential nominee Joe Biden takes the White House in November, the bill shows the type of push to limit mergers that may continue beyond the pandemic.