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U.S. merger review is becoming a difficult “balancing act,” and there is increasing skepticism among regulators about whether “remedies” — i.e., divestitures required for big mergers — do enough to maintain a competitive market, a Justice Department official said June 20.
Regulators are coping with a rise in large, complex deals and increased concentration in many industries. That means that the traditional ways of “fixing” big mergers, by asking for behavioral changes or sales of parts of their businesses, could be less effective than in the past.
In the current environment, antitrust regulators are increasingly asking themselves whether deals that raise competition concerns are worth fixing, according to Patricia Brink, director of civil enforcement at the DOJ’s antitrust division.
“I think there is a willingness to say that the very complex remedies may not be worth it, and maybe we should just block the deal,” Brink said at a conference hosted by the American Antitrust Institute, a competition advocacy group in Washington. Brink added that she was speaking in her own capacity.
The DOJ and the Federal Trade Commission have faced a wave of mega-mergers over the last few years. The antitrust agencies took an aggressive approach toward the end of the Obama administration, blocking deals such as Halliburton Co.’s proposed acquisition of rival oil-services firm Baker Hughes Inc.
Brink said Halliburton-Baker Hughes clearly wasn’t fixable, but other cases aren’t as straightforward and require more thought. Virtually all of Halliburton’s revenues (90 percent) “derived from products also sold by Baker Hughes,” she said.
The Justice Department recently cleared a proposed tie-up of Dow Chemical Co. and Dupont Co., which will create a global chemicals giant. The parties plan to split the merged company into three companies within 18 months of closing. Even so, that deal required substantial divestitures of the companies’ herbicide and pesticide products and two types of plastics.
Whether the agencies will be more or less receptive to negotiating remedies under President Donald Trump remains uncertain, according to Richard Feinstein, an antitrust partner at Boies Schiller Flexner LLP. “I wouldn’t necessarily assume a sea change,” he said at the AAI event.
Pending deals for regulators include Walgreens Boots Alliance Inc.’s proposed takeover of Rite Aid Corp. and Bayer AG’s bid for Monsanto Co.
The FTC released a study in February concluding that the vast majority of its remedies between 2006 and 2012 were successful. But critics say remedy failures in more recent cases, such as Dollar Tree’s takeover of Family Dollar Stores Inc. in 2015, raise questions about whether such efforts can work now.
In that case, Dollar Express LLC accused rival Dollar Tree Inc. of scheming to drive it out of business despite a U.S.-approved divestiture plan to maintain a competitive discount-store retail market. Dollar Express was the recipient of divestitures from that merger, but the company now is closing some 300 stores that it claims is a result of Dollar Tree’s unfair competition practices, according to Bloomberg News.
The issue is also front and center in the Walgreens-Rite Aid deal, as questions loom about whether Fred’s Inc. is capable of buying the stores that the merged entity would be required to sell.
“It’s everyone’s hope that merger remedy policy is not being used as an indirect method of avoiding the hard decisions about challenging mergers,” John Kwoka, an economics professor at Northeastern University, said at the event.
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