Monopolies and other consumer harm are bad -- but so is slowing the course of business.
Mergers are getting bigger and more complicated. For the Federal Trade Commission, Department of Justice and other regulators, which oversee mergers to make sure they don't lead to monopolies or hurt consumers in other ways, that means more work that is more complex. Consequently, merger oversight, resulting in either approval or a challenge from the government, is taking longer than ever.
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 President Obama, the FTC, DOJ and other regulatory bodies have challenged and blocked a higher proportion of U.S. deals than ever before. At the same time, deals are getting bigger and more complicated. Call it "Big Business vs. Big Government."
In this struggle, all the time that is necessary is taken for the government to make its moves, new data show.
While merger challenges have increased since President Obama took office, the numbers also show a steep rise in merger enforcement action just in the past year, said Rani Habash, an antitrust associate at law firm Dechert LLP. Deep Dive: Will the Next President Be as Tough on Mergers and Acquisitions as Obama?
"The agencies been very vocal about being willing to litigate. They've been on record about how they plan to increase enforcement and are not scared of going to court. They have been a little bit emboldened by fact that in last five years they have lost only one merger challenge," he added. (That would be a federal district judge's Sept. 24 refusal to grant the Federal Trade Commission a preliminary injunction preventing consummation of the $1.9 billion merger of medical sterilization providers Steris Corp. and Synergy Health.)
A merger tracking tool the Dechert firm developed also shows that DOJ and FTC merger investigations are taking longer. "Significant" merger investigation, the firm's term for a merger review that presents sufficient antitrust issues that the government either sues to block the deal, forces the parties to abandon the deal or accept a remedy, or issues a closing statement explaining why the merger was approved despite antitrust concerns, are taking longer. According to Dechert's stats, significant merger reviews in 2015 took on average 9.6 months, up from 7.1 in 2013.
The longest pending deals have now been under review for a year or more, he observed. Halliburton's (HAL) proposed $35 billion plan to acquire Baker Hughes (BHI) was brought before the Justice Department 17 months ago. Ball Corp.'s (BLL) ¿5.4 billion ($8.3 billion) acquisition of Rexam of London has been on the FTC's plate for 14 months and the Netherlands' Royal Ahold's plan to buy Belgium's Delhaize Group has been before the commission for 11 months. Deep Dive: Will the Halliburton-Baker Hughes Deal Survive Government Opposition?
"Is the government at war with business? Too strong," said TheStreet's Jim Cramer. "The government is dysfunctional, random, and ineffectual and business is just caught up in the maelstrom of anger and loggerheaded inactivity."
At least two major factors are driving the added length of investigations, Habash said.
One is that the very real threat of litigation is sufficient to convince merging parties to sign timing agreements giving the regulators extra time to investigate a deal and, they hope, avoid the time and expense of a merger trial. Without those agreements, the agencies have only 30 days after the companies have submitted all the information requested by the government to decide whether to file a complaint.
"We think parties are willing to give the agencies more time to investigate, hoping to avoid a lawsuit because they know it's going to kill the deal," said Habash.
The second reason for the longer reviews is that the agencies are demanding buyers for any assets that must be divested for antitrust clearance be approved before the deal closes. Regulators have come to prefer the tactic because it allows them to vet a divestiture buyer's business plan and finances to make sure it is capable of maintaining the competition that would otherwise be lost by the merger.
"There's been a significant increase in the use of upfront buyers," Habash said. According to Dechert's numbers, only one-third of merger consent agreements were subject to an upfront buyer 2011. In 2015, the share had climbed to 87%.
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