Record M&A Boom Risks Running Afoul of Biden’s Antitrust Cops

(Bloomberg) -- A runaway 2021 merger boom with almost $1 trillion of pending deals in the U.S. threatens to run headlong into the Biden administration’s new, tougher antitrust regime.

Federal Trade Commission Chair Lina Khan’s warning of a more aggressive stance to block deals, disclosed Thursday in a letter to Senator Elizabeth Warren, is the newest signal of a far more restrictive environment for mergers and acquisitions, according to lawyers and bankers.

“The new administration has made it clear that prior administrations -- both Democratic and Republican -- may have been overly permissive on mergers,” said James Fishkin, an antitrust attorney at Dechert LLP in Washington. “Lina Khan’s position is quite clear that she intends to bring more cases, and I expect to see the same at DOJ.”

The stepped-up scrutiny comes as global dealmaking has already surpassed $3 trillion in total value this year, putting 2021 on track to be the most active year for mergers and acquisitions, according to data compiled by Bloomberg. This year’s deals include pending mergers and acquisitions worth $984 billion involving a U.S. buyer or target company, according to data compiled by Bloomberg.

The list includes AT&T Inc.’s $43 billion deal to merge its WarnerMedia unit with Discovery Inc. to create a new independent company, and Canadian National Railway Co.’s $30 billion takeover bid for Kansas City Southern.

Khan’s FTC is investigating Amazon.com Inc.’s agreement to buy movie studio Metro-Goldwyn-Mayer, Nvidia Corp.’s acquisition of Arm Ltd., and Lockheed Martin Corp.’s deal to purchase Aerojet Rocketdyne Holdings Inc.

At the Justice Department, which shares antitrust enforcement duties with the FTC, officials are reviewing UnitedHealth Group Inc.’s proposed takeover of Change Healthcare Inc. and Bertelsmann SE’s $2.18 billion takeover of the Simon & Schuster book-publishing business from ViacomCBS Inc.

“I think it is real that they want to increase merger oversight, which is consistent with what’s happening in the U.K. and other foreign jurisdictions where they’re being much more aggressive even on deals where antitrust practitioners” didn’t foresee them asserting jurisdiction, said Raaj Narayan, a corporate partner at Wachtell, Lipton, Rosen & Katz.

The new environment is taking shape as President Joe Biden is moving to promote greater competition in the U.S. economy. He tapped Khan to run the FTC in June and announced last month that he was nominating Jonathan Kanter to run the Justice Department’s antitrust division. If Kanter is confirmed by the Senate, the two antitrust agencies would be led by advocates for a more forceful antitrust agenda than past administrations. Biden last month also issued an executive order calling on federal agencies to use regulatory and enforcement powers to boost competition in industries that have experienced rising consolidation.

What Bloomberg Intelligence Says:

The FTC’s more aggressive stance is likely to lead to unpredictable and lengthier M&A reviews, expanded remedies and more court challenges. Any large deal before the agency may be affected, though pharma, tech M&A and vertical deals may be in the greatest jeopardy. -Jennifer Rie and Sophia Isani, litigation analysts. Click here for the full note.

One investment banker who works on pharmaceutical deals and declined to be named said companies are worried about doing deals and facing a challenge by the FTC. A mergers and acquisitions lawyer at a top firm who spends most of his time in health care said he’s already seeing a chilling effect on deals because of antitrust risk.

Earlier this month, Khan’s FTC announced that companies may face extended merger reviews after they close their deals even when they comply with a required 30-day waiting period before completing transactions. The agency is telling companies that they are closing “at their own risk.”

The long-standing practice at the FTC and the Justice Department has been to give reported deals an initial 30-day review and either allow them to close at the expiration of the waiting period or open an in-depth investigation by issuing a so-called second request to the companies for more information.

Fishkin said the letters are unprecedented for the FTC and create new uncertainty for companies by exposing them to a costly investigation and the possibility that the agency later tries to unwind the deal, he said. The letters could end up deterring some mergers and prompt buyers to include terms in deal documents that allow them to abandon a transaction if the agency issues a letter, according to Fishkin.

Republican FTC Commissioner Christine Wilson criticized the warning letters and other actions by Khan to change the process for reviewing and clearing deals.

“Collectively, these actions raise the costs of pursuing mergers and threaten to chill harmful and beneficial deals alike,” Wilson said on Twitter.

This week, food delivery company Performance Food Group Co. disclosed to investors that it received a warning letter from the FTC about its agreement to buy Core-Mark Holding Co. but that it intended to close the deal by September.

“Many executives and their boards contemplating transactions will at the margin be deterred from going forward until we know more about the direction that merger policy will take,” Terry Calvani, a former FTC commissioner, said in an interview.

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