When Antitrust is Everything, Everywhere, All at Once: Navigating Regulatory Clearance Communications in the U.S.
Merger regulatory clearance used to be boring. The world of M&A was only exciting in financial circles with barbarians at the gate, white knights and dawn raids. Over the last few years, antitrust has become a popular political buzzword and suddenly the political world is the exciting piece of the M&A universe.
As politics descends on M&A, dealmakers in the U.S. need to confront a growing divide between the ever-expanding definition of antitrust in political circles, the academic debate on evolving antitrust law and the factual, judicially reviewed antitrust review process. The conundrum for dealmakers is how to navigate political, regulatory, and investor communications as these worlds increasingly come into conflict and create confusion. For global companies, there is the further complexity of the ever-expanding European antitrust regime. We will explore that world in our next essay.
Antitrust as a Political Buzzword
The most “popular” world of antitrust is the purely political one. However, it is also the least well defined and the most loosely tied to the regulatory clearance process.
Growing populist tendencies in both U.S. political parties are fueling the motivation to challenge companies. These politics are fueled by simplified information and increased conflict. The basic conception is that large companies are bad actors and there is political gain to be made in challenging these perceived antagonists. President Biden recently amplified this point in his February 2023 State of the Union Address.[1]
The popular tool to take on these bad actors: antitrust enforcement. If large companies are bad then smaller ones must be better. Antitrust makes companies smaller. This is why in politics antitrust means more than antitrust. It has become a buzzword for other any negative action from a large company.
While this may all seem over simplified and therefore easy to ignore, it is this political math that fuels everything about the current antitrust movement.
A Shifting Legal Debate
The second world of antitrust is more academic. The political energy behind antitrust has sparked a more deliberate and academic review of antitrust law. For those who closely follow the antitrust world, it might be best summed up as the New Brandeis movement against the Chicago School. In its simplest form, the debate centers on if regulators should evaluate deals against the structure of the economy and market conditions for competition as opposed to a careful review of short term price impacts.[2]
The key distinction between the academic debate and the political world, is that this world primarily centers on a review of the law as written and practiced. The combination of the political energy and academic debate is what has fueled the regulatory challenges of the past few years. The politics are driving real meaningful shifts in regulatory approaches. In December, Congress passed an appropriations package that for the first time since 2001 modified the structure of merger fees, imposing significant increases for mergers valued over $1 billion.[3] The new revenue will dramatically increase future funding for the Federal Trade Commission (FTC) and the Department of Justice (DOJ), which already received funding increases for FY 2023.[4]
Unshakeable Market Demands
The third world of antitrust lies with the market. Our experience suggests that investors view antitrust challenges as a risk factor to deal closure. Transactions are about value creation. Regulatory review and clearance are simply risk factors to be balanced in an investment decision focusing on timing and cost. The political swirl or legal debates are entirely disconnected from the here and now of deal execution.
Navigating the New World
For dealmakers, the political and regulatory energy behind antitrust is creating increasing attention on transactions, which is certainly increasing costs and timeline to close.[5] However, the U.S. judicial review process and the lack of any serious changes to antitrust law has enabled many deals to close even through litigation with the government. UnitedHealth’s recent acquisition of Change Healthcare is one such example.[6] We recommend dealmakers focus on the following in thinking about how to navigate this new world:
- Political attention costs time – Do not assume that the political world’s attention on your deal will have no impact. While elected officials have no legal ability to directly block most transactions, our experience suggests their attention on a deal can increase the time of the regulatory review process. Each time a letter is sent to a regulator it pulls time, attention and resources away from the review. Calm political waters can put legal teams in an improved position to engage with regulators in an efficient process. While messaging will always need to align with the legal arguments, to keep political interference to a minimum the deal narrative will also have to address the political and even academic antitrust debates.
- Remember the law – Over the past few years, the political energy around antitrust has often clouded the conversation on specific transactions. Communicators need to be ready to engage in these debates but should always push media, investors and elected officials back to the legal merits of a deal. This is even more important as regulators have increasingly lost legal challenges to deals in the courts, as was the case of UnitedHealth’s acquisition of Change Healthcare.[7]
- Check what’s in the bank on reputation capital – Large transactions are significant news events for buyers and sellers that can amplify any simmering reputational issues. It is important for dealmakers to conduct a comprehensive political and reputational assessment during the diligence process to identify possible vulnerabilities and understand what investment has been made across stakeholder relationships. Where possible, consider pre-announcement relationship building.
- Align legal, political and financial messaging – Every stakeholder in a transaction wants to hear a specific and often competing message. Investors want to know about synergies, regulators don’t want to see market power, employees want job assurance, etc. Many times these messages directly contradict one another. Deal communications need to effectively coordinate with deal strategy to tell one story that prioritizes transaction close.
- Have something to give – Smart dealmakers are always thinking two steps ahead of their counterparty. For a transaction that does find itself subject to significant public political scrutiny it is important to think about what can represent a political win that would lessen the attention. We have seen some deals talk about price commitments, employee wages, and new capital investments, for example. The timing is key. If these commitments are announced with the deal, then they are just the starting point for negotiation.
[1] Eric Cortellessa, “Biden Calls for Antitrust Laws to Rein in Big Tech After Schumer Blocked Last Effort,” Time Magazine (February 7, 2023), https://time.com/6253755/biden-big-tech-state-of-the-union-2023/.
[2] Laura Phillips Sawyer, “U.S. Antitrust Law and Policy in Historical Perspective.” Harvard Business School Working Paper, No. 19-110 (May 2019; revised September 2019), https://www.hbs.edu/faculty/Pages/item.aspx?num=56116.
[3] Ken Daly, Karen Kazmerzak, et al., “January Antitrust Bulletin: Top-of-Mind Global Antitrust Issues,” Sidley Austin LLP (January 31, 2023), https://www.sidley.com/en/insights/newsupdates/2023/01/january-antitrust-bulletin.
[4] David Brenneman, M. Luisa Di Lauro, and Harry Robins, “New Legislation Dramatically Increases Funding to US Antitrust Agencies Over Five Years, Ensuring Aggressive Enforcement,” JD Supra; Morgan Lewis (January 11, 2023), https://www.jdsupra.com/legalnews/new-legislation-dramatically-increases-6874627/.
[5] “Deputy Assistant Attorney General Andrew Forman of the Antitrust Division Delivers Remarks to the ABA M&A Committee at the Business Law Section Annual Meeting,” The United States Department of Justice (September 17, 2022), https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-andrew-forman-antitrust-division-delivers-remarks-aba.
[6] Samantha Liss, “Done deal: UnitedHealth completes $13B Change Healthcare buy,” Healthcare Dive (October 3, 2022), https://www.healthcaredive.com/news/unitedhealth-completes-13b-change-healthcare-buy-doj/633154/.
[7] Ibid.
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