Op-ed: Latest antitrust proposals might throw sand within the gears of financial restoration by bringing M&A to a standstill
Senator Amy Klobuchar speaks at the U.S. Presidential Candidate Debate on Democratic 2020 at Saint Anselm College in Manchester, New Hampshire, United States on February 7, 2020.
Brian Snyder | Reuters
Mergers and acquisitions (M&A) are being driven by an increasing number of Washington, D.C. policy makers.
Last year, some congressmen called for a merger moratorium banning all mergers and acquisitions during the pandemic. In a surprise 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 powers to block M&A it believes are 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. Adding friction to M&A activity can stall 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 captured legislators who are more interested in modern memory than any other time. Senator Klobuchar's legislation is the most ambitious attempt to reform antitrust laws in nearly half a century. A major 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 dealings of private parties by blocking M&A that they decide to do 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 that prevents 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 in merger disputes, the only thing related to merger disputes is that the government always wins.
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, however: 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 is 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. This is a record any trial attorney would envy. And the government win rate only improves when you look at recent cases. In fact, after the DOJ or the FTC have challenged a merger, most of the time companies abandon their deal before the trial because the legal standard is so favorable to the government. This even includes successful challenges against deals that include the acquisition of an emerging 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 "poses a significant risk of substantially reducing 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 drawbacks businesses 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 type 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 the exit by M&A.
That does not mean 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 calls for an increase in funding for the DOJ and FTC to ensure that antitrust laws serve their purpose. However, it is equally important 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.