United States Senator Elizabeth Warren (D-MA) and United States Representative Mondaire Jones (D-NY) on March 16, 2022 introduced the Prohibiting Anticompetitive Mergers Act (the Act) to ban what they’ve called “the biggest, most anticompetitive mergers.” Senator Warren’s press release describes how the Act would give the Department of Justice (DOJ) and the Federal Trade Commission (FTC) the “teeth to reject deals in the first instance without court orders and to break up harmful mergers,” including the power to retroactively reverse mergers that they deem to negatively impact consumers, workers and small businesses.
Overview of the Act
A summary of the Act released by Warren states that the excessive market power that results from large mergers – such as Facebook/Instagram, Sprint/T-Mobile and American Airlines/US Airways – aggregates excessive market power in consolidated entities which “costs American families $5,000 per year on average and has depressed median household wages by $10,000.” Warren’s summary further states that the DOJ and the FTC currently must obtain injunctions to block mergers, which can cost millions in litigation fees. The Act would make the following “prohibited mergers” illegal:
- Deals valued over $5 billion;
- Deals resulting in market shares over 33% for sellers or 25% for employers; and
- Deals resulting in highly concentrated markets under the 1992 Merger Guidelines.
Some ways that the Act overhauls the merger-review process are by:
- Allowing the agencies to reject mergers before consummation without court orders;
- Requiring the agencies to reject certain mergers, including prohibited mergers;
- Prohibiting firms with a history of corporate crime or antitrust violations in the last 10 years from acquiring other companies;
- Directing the agencies to scrutinize the labor impacts of each deal and reject mergers deemed harmful to workers (e.g., by causing significant layoffs, weakening collective bargaining agreements, or reducing compensation or benefits);
- Prohibiting private-equity “roll up” strategies that quickly consolidate industries;
- Allowing state attorneys general to sue to block harmful mergers;
- Transforming merger litigation into simple evaluations of agency process instead of complex, expensive court battles over a deal’s potential competitive effects; and
- Stripping merger litigation from the appellate jurisdiction of the Supreme Court.
The Power to Retroactively Unwind a Deal
The Act establishes procedures for the government to conduct reviews to retroactively unwind deals or require acquirors to make divestitures, including:
- Requiring the agencies to review every prohibited merger consummated since January 1, 2020;
- Allowing the agencies to review any consummated merger;
- Requiring a break-up if the merger resulted in a market share above 50% or materially harmed competition, workers, consumers, or small or minority-owned businesses; and
- Allowing state attorneys general to sue to break up harmful mergers.
Key Takeaways
Although the Act has not been passed in either legislative chamber, the bill is backed by Senator Bernie Sanders (I-VT), Representative Alexandria Ocasio-Cortez (D-NY). In total, 7 Senators and 11 members of the House of Representatives signed onto the Act as co-sponsors. However, Amy Klobuchar (D-MN) and Representative David Cicilline (D-RI), who are heavily involved with efforts to pass legislation to regulate big tech, are not co-sponsors, so it remains to be seen if either chamber has sufficient votes for the Act to pass.
Notably, the DOJ and FTC have announced a joint public inquiry related to the federal merger guidelines. The agencies are expected to release revised proposed guidelines after reviewing the comments they received during the comment period that ended March 21, 2022. M&A practitioners will need to stay apprised of this and the ultimate fate of the Act.