Donald Trump likes to make deals. President Obama's administration has made a habit of challenging them.
Over the past eight years, the federal government has been more aggressive in opposing mergers it has called anti-competitive than ever before. Using data from the Federal Trade Commission and The Deal, a subsidiary of TheStreet.com, TheStreet has discovered a pattern of increased regulatory actions challenging mergers that dates back to the Reagan administration. Under Obama, the FTC, DOJ and other regulatory bodies have challenged and blocked a higher proportion of U.S. deals than any previous administration. At the same time, deals are getting bigger and more complicated. Call it "Big Business vs. Big Government."
But Obama's term in office ends soon and his successor may cultivate a more conducive regulatory climate for mergers and acquisitions, but it will largely depend on who that individual is.
From 2009, when Barack Obama took office, through 2015, the Federal Trade Commission and Antitrust Division of the Department of Justice have challenged 2.84% of proposed merger transactions. While that may appear a nominally small fraction, when compared to other administrations, it is quite high: George W. Bush's administration challenged 2.01% of deals, and Bill Clinton's 1.71%. Under George H.W. Bush, the FTC and DOJ challenged about 1.25% of proposed transactions, and under Ronald Reagan, they challenged about 1%.
The Treasury Department has increased pressures as well, issuing three new sets of tax inversion regulations under Obama's watch. Most recently, it laid a fresh set of rules apparently aimed directly at killing a $160 billion proposed merger between pharmaceutical giants Allergan (AGN) and Pfizer (PFE) . The move spurred a backlash, including from a group of 18 former Treasury Department officials who penned an open letter to Treasury Secretary Jack Lew on April 18 urging him to reconsider the department's actions. Deep Dive: Tax Inversions: Explaining What They Are, How We Got Here and What's Next
Surveying the data on increased government challenges to M&A, Doug Holtz-Eakin, economist and president of the American Action Forum, a center-right policy institute in Washington, D.C., acknowledged that it does look like there has been an uptick in challenges under Obama. "That raises the question as to whether it's the right policy," he said.
Right or not, regulatory regime of the Obama administration will soon come to an end. We delved into how each of the four leading candidates to succeed Obama in the White House have positioned themselves in relation to M&A, tax code and deal-making in general to decipher who might do what and how. We've put them in order of "most likely to be tough on deals" to "least likely."
Toughest on Deals: Bernie Sanders
Vermont Senator Sanders is no friend of corporate America, and that won't change, he's said, once he's in the Oval Office.
"He has openly said he wants to increase regulation and taxing," said Diana Furchtgott-Roth, senior fellow at the Manhattan Institute and former chief economist of the U.S. Department of Labor.
"Sanders has been pretty vocal about breaking up the banks," said Sonny Allison, corporate partner at law firm Perkins Coie in Denver. "At least in the financial institutions sector, I would expect that if he were to make it in, there would be heavy regulatory scrutiny of any banking M&A. In fact, he may be forcing divestitures and breakups."
Sanders has made breaking up major financial institutions -- entities like Goldman Sachs, JPMorgan and Morgan Stanley -- one of the central themes of his campaign. However, he has not quite specified exactly how he would go about the process. In an April 1 interview with the New York Daily News editorial board, he raised eyebrows when his remarks seemed to indicate he does not yet have a specific game plan for accomplishing his goal. Deep Dive: For Banks, Era of 'Too Big to Fail' Is Also Era of 'Too Small to Succeed'
"How you go about doing it is having the legislation passed, or giving the authority to the secretary of Treasury to determine, under Dodd-Frank, that these banks are a danger to the economy of the problem of too-big-to-fail," he said.
He later clarified his stance, indicating he would leave it up to the banks themselves to figure out how to do it -- not, for example, Treasury. "The banks themselves can figure out what they can't to sell off. I don't know that it's appropriate that the Department of Treasury to be making those decisions," he said.
Beyond the banks, the senator's campaign website pledges to enforce antitrust laws against large agribusiness and food corporations. "A few large companies dominate many agricultural industries, allowing them to force unfair prices on farmers," the website reads. "Senator Sanders will stand up to these corporations and fight to ensure that farmers receive fair prices."
On inversions, Sanders has introduced the Corporate Tax Dodging Prevention Act, which he says would "end the inversion tax scam by treating corporations as American corporations for tax purposes when it is still majority owned by U.S. interests."
"My message to these corporate deserters is simple: You can't be an American company only when you want corporate welfare from American taxpayers or you want lucrative contracts from the federal government," he said in a statement.
Like Obama, Tough on Deals: Hillary Clinton
Of all the candidates still in the race, Democratic frontrunner Clinton's stance on deals may be among the most obvious to forecast. The former secretary of state has largely embraced Obama's legacy on the campaign trail and indicated she intends to emulate his presidency -- not necessarily her husband's.
"I imagine a Hillary Clinton presidency would look a lot like the Obama presidency or an extension of that," said Steve Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center and former legislation counsel with the Joint Committee on Taxation.
Logan Breed, an antitrust lawyer at Hogan Lovells in Washington, D.C., agreed. "If Hillary Clinton wins, the DOJ's approach to merger clearance will be largely the same as it has been under the Obama administration," he said.
In an October editorial in Quartz, Clinton pledged to "take steps to stop corporate concentration in any industry where it's unfairly limiting competition" and "prevent concentration in the first place by beefing up the antitrust enforcement arms of the Department of Justice and the Federal Trade Commission." She has specifically targeted the pharmaceutical industry in many of her antitrust criticisms (her statements on the campaign trail have even moved markets).
Clinton has also laid out a plan for clamping down on tax inversions. In a fact sheet posted on her campaign website, she specifically targets inversions in a proposal that includes imposing a 50% threshold for foreign company shareholder ownership after a merger before a company can give up its U.S. identity. Her inversion platform also includes a so-called "exit tax," which would require companies to pay taxes on unrepatriated offshore earnings. Deep Dive: With New Treasury Department Rules, Is This the End of Tax Inversion Deals?
Rosenthal, who is a proponent of such a tax, emphasized that part of what makes it attractive is that it wouldn't just apply to U.S. companies inverting.
"The exit tax is neutral between U.S. companies that invert -- that is, a larger U.S. company merging into a smaller foreign company, that's typically how an inversion is defined -- and cross-border combinations that are combinations of equals or, alternatively, a larger foreign company acquiring a smaller U.S. company," he said.
The Art of the Deal Regulations: Donald Trump
Surprise! The Art of the Deal author wouldn't be the most friendly president for deals out of the current crop of contenders.
Trump's political positions during his presidential bid and throughout his lifetime have been all over the map, and his stances on regulation, taxes and deal-making are no exception. Moreover, much of his experience with regulatory entities is informed by his contact with them as a businessman.
As former FTC Chairman Bill Kovacic pointed out in a January talk at the conservative Heritage Foundation in Washington, Donald Trump is an anomaly in that he is the only candidate in recent history to have been involved in an antitrust lawsuit himself. He spearheaded an antitrust suit against the NFL in the 1980s as an owner of a team in the short-lived United States Football League (his league won the suit and was awarded a symbolic $1).
"I don't suppose he's reflected and thought about that as the key index of what he'd do in the future," Kovacic joked.
Trump has had run-ins with the FTC as well, most recently tied to complaints leveraged about his Trump University. But before that, he was fined $750,000 by the Commission in 1986 for two separate transactions in which he acquired stakes in Holiday Corp. and Bally Manufacturing Corp. through Bear Stearns without filing required pre-merger notifications with the FTC and DOJ. Trump eventually made the appropriate filings, but not within the time frame established by the law. Trump complained that the slip-up was Bear Sterns', not his.
"Maybe given his experience with the FTC -- he felt he was treated very unfairly -- you could see him push for Congress to change the law and create broader exemptions from notice in requirements for people buying [non-controlling] interests in companies," said Steven Bradbury, partner at Dechert LLP. Deep Dive: Antitrust Regulators Are Getting Smarter and More Aggressive
The GOP frontrunner's legal troubles aside, it is difficult to decipher exactly what a President Trump might mean in terms of M&A regulation and the deal environment.
"Trump's a wild card, it's not obvious where he'll be," said Holtz-Eakin.
Take, for example, health care. He has at times appeared to veer to the left on the industry, in January saying he would allow Medicare to negotiate drug prices directly with pharmaceutical companies. He has also swayed hard right, on his website promising to remove barriers in order to allow consumers to access drugs from overseas.
Trump's campaign trail anti-trade stance complicates things as well. "Trump's views on outsourcing, etc., create a lot of questions about how he would view particularly cross-border acquisitions that might take either headquarters or manufacturing or workforces outside the U.S.," said Allison. "There's a big open question there."
His tax platform seems to indicate a belief that a lower 15% corporate tax rate would discourage companies from moving elsewhere in the first place. "This lower rate makes corporate inversions unnecessary by making America's tax rate one of the best in the world," his campaign website reads.
"He sort of guarantees that when Trump makes a deal, U.S. companies will not be leaving America anymore," said Rosenthal.
Of course, there's no guarantee the private deal-making expertise Trump has touted so often throughout his White House bid will translate well to the public realm. In fact, many believe the brand of dealing Trump has employed as a businessman would have no place in a presidential administration.
"There's not a great track record of businessmen being successful presidents. There is a big difference between saying, 'I know how to cut a deal," and saying, 'I know how to set up an environment where people can make deals," said Holtz-Eakin. "Those are different things. Because if you know how to cut a deal, what you're used to trying to do is steal deals, when someone else has got a good deal going, you find a way to get your hands on it."
"What consumers need is competition. Competition means freedom of entry. Freedom of entry means the same rules for everybody, not special deals," said Furchtgott-Roth. "That's no recipe for a transparent and vibrant economy. It's more like what goes on in China."
Trump's behavior on the campaign trail indicates he may have a tough time taking a broader focus and instead lean toward pinpointing businesses he considers good or bad. He has consistently railed against Oreo-maker Nabisco, air conditioner-manufacturer Carrier and automaker Ford for moving parts of their operations overseas. If president, Trump may choose to use the bully pulpit to go after those companies and ones like them.
Dealmakers across the globe appear to think a Trump presidency would be problematic. A recent survey of M&A professionals worldwide conducted by content collaboration company Intralinks and reported by Business Insider found two-thirds of respondents said Trump would be more negative for their sector than Sanders, a self-described democratic socialist.
However, it is worth noting that dealmakers internationally appear more worried about Trump than those based in the U.S. (which may explain a separate survey where North American respondents said Trump and Clinton would be best for deals and corporate interests).
Former FTC Enforcer Is a Dealmaker's Best Friend: Ted Cruz
Cruz has given strong signals that he'd be much more friendly to corporate America than Sanders or any of the other presidential candidates.
"[Ted] Cruz has a website full of promises to reduce the regulatory burden, focus on small businesses, sort of restart the ability of firms to grow and acquire things," said Holtz-Eakin, who served as chief economic policy adviser to U.S. Senator John McCain's 2008 presidential bid.
Cruz has more than campaign promises to fall back on -- he also has experience.
The Texas senator served as a director at the Office of Policy Planning at the FTC under the Bush administration from 2001 to 2003, where he was responsible for leading policy development and legal strategy as part of the senior executive team for the Commission. While at the FTC, Cruz largely pursued conservative goals and pushed back against local and state rules for things like teacher certification and hospital accreditation, arguing that they discouraged competition. Deep Dive: Top Antitrust Regulator Debbie Feinstein Q&A
Kovacic said in his Heritage Foundation talk that despite the overarching narrative that Cruz is tough to work with, he has fond memories of the senator, who he crossed paths with as agency general counsel.
"He was a very good colleague and was an enormously effective administrator of his office and indeed had a key role in launching a number of advocacy measures that continue to resonate within the agency today," Kovacic said. "One wonders whether Ted would look back at that experience and say, 'that's the core of a competition program I would like to support over time.'"
In the Senate and on the campaign trail, however, Cruz has taken a hard anti-regulatory line.
"Of all the candidates, Ted Cruz has been the most anti-regulatory," said Furchtgott-Roth.
In a January editorial in the Wall Street Journal, Cruz is quoted as telling a mean joke about regulators. "A few years back I was in West Texas. And I asked folks out there, I said, 'What's the difference between regulators and locusts?' Said, well, 'The thing is, you can't use pesticides on regulators.' This old West Texas farmer leaned back, said, 'Wanna bet?'"
Cruz has attacked President Obama and Democrats for failing to address "crushing taxes and regulations from Washington that have killed growth and produced economic stagnation" and has proposed eliminating five government agencies, including the IRS, which he says will be turned into a small division of the Department of Treasury.
The senator blames America's inversion problem on overregulation as well, telling CNBC in an April interview that the Obama administration's new rules to discourage the practice are "entirely backwards."
"We're seeing corporate inversions because of massive regulations and taxes are driving companies overseas," he said. "You can't force businesses to stay here, as the Obama Treasury Department is doing. You create an environment that businesses want to be here."
He added that under a Cruz presidency, he thinks the American business environment would be so good that European and Asian companies will be inverting to the U.S.
Deals of the Next Administration
To be sure, who the next president is may not have much effect on the pace of deals, regardless of regulatory stance.
"People are doing deals based upon certainty and trying to get things in while they know what the regime is," said Steven Davidoff Solomon, former corporate attorney and law professor at the University of California Berkeley. "Deal-making might be better under 'xyz' regime, but you don't know what that regime is going to be."
However, other firms may decide to wait and see what happens in November.
The Treasury Department will likely be unable to put forth another set of new rules before Obama's term is up, and it is under a time crunch to finalize this last batch of rules before then, too, explained, Bob Willens, a New York-based tax analyst and former managing director at Lehman Brothers.
"This Treasury is trying to finalize in record time," he said, estimating that they have until about Labor Day to do so.
Otherwise, he says he thinks whoever No. 45 is -- Clinton, Sanders, Cruz, Trump or someone else -- is likely to roll the rules back. "The chances are almost nil that those regulations would be finalized under a new administration," he said.
Surveying the road ahead, dealmakers will have some decisions to make.
"Presidential elections always create a small element of uncertainty," said Allison. "Companies that want to do deals are going to attempt to do those deals."
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