Antitrust Impact on the Future of US M&A
The news that the Department of Justice (DoJ) blocked the proposed AT&T takeover of T-Mobile USA by filing a suit against the deal was a shock to most industry players. The move indicates a greater focus on antitrust enforcement, but what does this mean for the US M&A market going forward?
On August 31, the Department announced that it was filing a suit to block the $39 billion proposed takeover of the country’s fourth largest mobile carrier, T-Mobile USA, by the largest, AT&T.
The DoJ explained that the suit was filed as a result of concerns that the deal would lead to less competition in the industry. This, in turn, would lead to higher prices, lower quality products, less innovation and fewer choices for consumers, it claimed. The agency also told the Wall Street Journal that it considered T-Mobile to be a major innovator in its field and that removing it caused it concern.
President Barack Obama spoke of his intention to strengthen emphasis on antitrust enforcement during his election campaign, and it seems the DoJ is now taking his words on board.
Michael Cohen, who heads up the anti-trust practice at legal firm Paul Hastings, told eFinancial News, “This is a new day for antitrust and shows the agencies have more room than the market thought to take an aggressive approach.”
According to analysts interviewed by the International Business Times, alternatives that may be being discussed by the AT&T dealmakers include the takeover of Sprint Nextel Corp, which is currently the third largest wireless carrier in the US.
David Dixon, an analyst at FBR Capital Markets said, “Our regulatory checks suggest lower regulatory risks associated with a potential Sprint/T-Mobile combination as we believe the regulatory agencies are likely to consider the merits of such a merger on a different basis to AT&T/T-Mobile.”
This judgment is largely based on claims that neither Sprint nor T-Mobile would necessarily have the means to continue to offer competitive prices or to invest in the development of their network capabilities—essential for the progression of high speed broadband—without such a deal.
Aside from the wireless industry, legal experts now feel that M&A activity in many other sectors could come under the same increased scrutiny and emphasis on competition as AT&T has. Industries that are central to the overall health of the US economy, including energy, technology and pharmaceuticals, are likely to be particularly affected. So what exactly has changed?
In June this year, the DoJ released an update to its guidelines on merger remedies and this has provided a route to a more aggressive approach. However, it is not simply the case that more deals will be blocked. Instead, experts feel that more options are open to agencies to consider conduct remedies, in addition to the structural remedies that were previously relied upon.
This new approach was taken in response to the proposed merger of TicketMaster and Live Nation. Behavioral remedies were imposed, including anti-retaliation provisions that are in place for ten years.
Analysts are also noticing a more international approach to monitoring whether demands imposed are being met—with the DoJ increasingly working alongside competition commissions in other countries. The American Antitrust Institute’s Diana Moss, told eFinancial News, “This raises a lot of questions on how regulators monitor whether companies are doing what they promised and how those remedies will be enforced, which is a very new thing.”
For firms considering M&A deals that could be a valid antitrust risk—which is expected to remain an extremely small percentage—the advice is to prepare early. It is wise to bear in mind that agencies are now clearly willing to use litigation to block deals and are likely to view firms that are well prepared for review in a positive light.
