Investment bankers and deal lawyers accustomed to regulatory hurdles to their mergers face an unprecedented challenge under US President Joe Biden – antitrust watchdogs who are undaunted when they lose such battles in court.
The US Justice Department and Federal Trade Commission (FTC) have attempted to thwart 22 mergers since Biden came into office in January 2021, according to a Reuters review of announcements from the agencies.
That outnumbers the antitrust challenges during the first two years of former President Barack Obama’s first term in office and is twice as many as in Donald Trump’s first two years, the Reuters analysis shows.
While comprehensive data going back decades is unavailable, Joel Grosberg, an antitrust lawyer at McDermott, Will & Emery LLP, said more mergers are entangled in U.S. antitrust litigation now than at any point in his 25-year career.
“It’s a combination of the FTC and (Justice Department) being willing to litigate and the fact that companies are fighting back,” Grosberg said.
The regulators managed to stop 15 out of the 22 deals, many without a court fight as companies gave up and walked away from their agreement. More recently, they have lost four attempts to block mergers in court, though they are appealing two of the cases.
These losses have not soured regulators’ appetite for challenging mergers. Biden’s appointees – FTC Chair Lina Khan and DoJ antitrust chief Jonathan Kanter – are pressing on, arguing that corporate consolidation has gone too far, harming consumers and workers at a time of rampant 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.
Kanter told U.S. lawmakers in September his department would not “back down from bringing meritorious cases.” In a letter in August, Khan told Senator Elizabeth Warren she believed asset sales to remedy competition issues with mergers frequently fell short.
In response to a request for comment, an FTC spokesperson referred Reuters to recent comments that Khan made in her congressional testimony in September about the effects of past consolidation and the need for stronger enforcement.
The Justice Department did not immediately respond to requests for comment.
The biggest deal currently at stake is Microsoft Corp’s $69 billion bid for “Call of Duty” maker Activision Blizzard Inc. The FTC has sued to stop it, arguing it would allow Microsoft’s Xbox to get exclusive access to Activision games and put it in a position to dominate the gaming market. Microsoft is fighting back and last week told a judge the deal would benefit gamers and gaming companies alike.
Cary Kochman, global co-head of M&A at Citigroup, said deals are taking longer to be approved, forcing companies to “dribble the ball” and “delay engagement on potential transactions” until the regulatory landscape becomes clearer.” Citigroup was not an advisor on the Microsoft-Activision deal.
Bracing for battle
Bankers and lawyers are advising merger partners to prepare for long battles with regulators. They are pushing for contracts with more time to complete a deal, to account for the possibility of antitrust lawsuits.
“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 that acquirers agree to pay their targets if their deal gets shot down by antitrust regulators are also on the rise. This year’s U.S. total of $22.6 billion accounts for 4.6% of deal value, according to Refinitiv, the highest level since the first eight months of 2013, when dealmakers worried about Obama’s antitrust crackdown.
Many companies facing merger challenges say they will fight on, emboldened by the four court losses of the Justice Department and FTC. These include lawsuits to thwart health insurer UnitedHealth Group Inc’s $8 billion bid to buy health-technology firm Change Healthcare and life sciences company Illumina Inc ‘s $7.1 billion acquisition of cancer test developer Grail.
“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.
