Why Some M&A Deals Win Despite Being Blocked by Authorities
While antitrust authorities can lose M&A cases in court for a variety of reasons, here are ten possible causes:
- Insufficient evidence: Antitrust authorities may provide insufficient evidence to support their claims that a proposed merger would harm competition and consumers.
- Legal errors: Antitrust authorities may make legal errors in their analysis or decision-making, making their decisions susceptible to legal challenge.
- Changing market conditions: M&A transactions may be affected by changing market conditions, such as new competitors or a shift in consumer preferences, which can impact the competitive landscape far more.
- Inadequate market definition: Antitrust authorities may define the relevant market too narrowly, which can impact their assessment of the merger's effect on competition.
- Overemphasis on market share: Antitrust authorities may overemphasize the significance of market share in their analysis, rather than focusing on the impact on competition.
- Failure to consider potential efficiencies: Antitrust authorities may not adequately consider potential efficiencies, such as cost savings or enhanced innovation, that could result from a combination.
- Political pressure: Antitrust authorities may be subject to political pressure to obstruct or sanction specific mergers, which may compromise the integrity of their decision-making process.
- Judicial deference: Courts may be deferential to the business judgment of companies and less likely to intervene in merger decisions, particularly if the companies can provide compelling evidence of the merger's benefits.
- Procedural irregularities: Antitrust authorities may fail to adhere to proper procedure or due process in their decision-making, undermining the legitimacy of their decisions and making them more susceptible to legal challenge.
Antitrust Authorities Overruled: Court Reversals of M&A Transactions that got Blocked
Mergers and acquisitions (M&A) that could harm competition and consumers are prohibited by antitrust authorities such as the Federal Trade Commission (FTC) and the European Union (EU) Commission. In certain cases, however, their decisions to block transactions are challenged and overturned by a court. Here are some instances:
- Staples-Office Depot (2016): In 2016, the FTC blocked the proposed merger of office supply retailers Staples and Office Depot on the grounds that it would result in higher prices and fewer options for consumers. However, the decision was reversed by a federal judge who determined that the FTC had insufficient evidence to support its claim. The judge remarked that the FTC had failed to adequately account for changes in the office supply industry, such as the rise of online retailers such as Amazon, which would have mitigated any potential anticompetitive effects of the merger.
- Anthem-Cigna (2017): In 2017, the Department of Justice (DOJ) filed a lawsuit to prevent the proposed merger of health insurers Anthem and Cigna, arguing that the transaction would result in higher prices and less innovation. However, a federal court concurred with the companies and allowed the merger to proceed, concluding that the DOJ had failed to demonstrate that the merger would significantly reduce competition. The judge observed that the two companies serviced distinct markets and that the potential benefits of the merger, such as increased efficiency and innovation, outweighed any potential competition-related injury.
- AT&T-Time Warner (2018): In 2018, the DOJ filed a lawsuit to block the proposed merger between telecommunications behemoth AT&T and media company Time Warner, arguing that the transaction would harm competition and increase consumer prices. However, a federal court rejected the DOJ's arguments and permitted the merger to proceed, concluding that the government had failed to demonstrate that the merger would significantly reduce competition. The judge remarked that the DOJ had failed to show that the amalgamated company would have the ability and incentive to raise prices or harm competitors, and that the vertical integration of the two companies could actually benefit consumers by resulting in more innovative and competitive products.
- UPS-TNT Express (2013): In 2013, the European Commission blocked the proposed merger of delivery companies UPS and TNT Express on the grounds that it would result in higher prices and fewer options for consumers. However, the decision was subsequently reversed by a European court, which determined that the Commission had committed legal errors and failed to demonstrate that the merger would significantly impair competition.
- Ryanair-Aer Lingus (2013): In 2013, the European Commission prohibited the low-cost airline Ryanair from acquiring the Irish airline Aer Lingus on the grounds that the acquisition would create a dominant entity on the Irish market and reduce competition. However, the decision was subsequently overturned by a European court, which determined that the Commission had not adequately evaluated the merger's potential cost savings.
- CK Hutchison-O2 (2016): In 2016, the European Commission blocked the proposed merger of telecommunications firms CK Hutchison and O2, arguing that the transaction would result in higher prices and less consumer choice. However, the decision was subsequently reversed by a European court, which determined that the Commission had not adequately analyzed the merger's impact on market competition.
These cases demonstrate how difficult it is for antitrust authorities to demonstrate that mergers and acquisitions will harm competition and consumers. Before ruling in favor of a merger, judges frequently require substantial evidence and analysis, and they may be skeptical of government claims that a transaction will result in higher prices or less innovation.
