The Problem with Corporate Mega-Mergers
Over the past 12 months, a total of $1.3 billion of M&A deals in the United States have been announced, just within the first three quarters of 2018 alone. That pales in comparison to an announcement from AT&T about its interest in purchasing Time Warner, a deal that would cost 84.5 billion USD. This would result in one of the largest multi-channel service providers. Due to the disapproval and dismay of many Congressmen, the deal was prevented by the Obama Administration, which went on to prevent many similar mergers such as Sprint and T-Mobile, AT&T and T-Mobile, and Allergan and Pfizer (VA.org). But deals like this continue to rise. 79% of Deloitte’s 2019 M&A survey believe that the number of M&A deals they close in the next 12 months will increase, which is a 70% increase from last year.
According to a poll on VA.org and Isidewith.com, more than 70% of American voters believe the government should prevent “mega” mergers. So why are so many people against this, and what are the criteria that are used to distinguish between a “mega” and a normal merger? Breaking down the data, 5% of total voters believe the government should act only if the consolidated company has 50% or more market share, with another 2% expressing that the government should break apart existing mega-corporations. Mega-corporations control more than 50% of market share and are anti-competitive for both normal consumers and new businesses trying to enter the market. This spans from conglomerates like Berkshire Hathway to investment banks like JPMorgan Chase.
Supporters of mega-mergers believe the government should not touch the free market and, mergers should be granted approval to follow its course of action. Some even say allowing businesses to fully compete would lower prices for everyone. The Sherman-Anti Trust laws put in place can prevent collusion, monopolies and market control. However, antitrust laws do not prohibit a company from controlling a large market share in an “innocent” way. Instead, it allows the court to determine whether or not the merger is using unfair tactics (legalcareerpath). Despite the current pro-military administration, some mergers, like the L3-Harris defense merger, are still being stopped by the Justice Department. If this merger occurred, it would have allowed two medium-sized companies to dominate visual communication for military equipment, and allow close integration with the military (The Economist). Deals like this make me wonder how much influence the administration has in favoring certain mergers, given that both government agencies and private entities can wield Antitrust.
Despite overwhelming implications for mergers, there are many headwinds and obstacles that are organically preventing M&As. Global trade uncertainties, capital market volatility and deal valuation are three key issues that are still barriers to M&As, according to Deloitte. It makes sense, given the current global trade tensions, but there seems to be a growing cry towards reforming or at least updating these age-old laws to fit our ever-shifting economy.
Sources:
https://www.isidewith.com/poll/2781383983
https://va.org/implications-of-mega-mergers/
https://en.wikipedia.org/wiki/List_of_largest_companies_in_the_United_States_by_revenue
https://www2.deloitte.com/us/en/pages/mergers-and-acquisitions/articles/ma-trends-report.html
https://spacenews.com/l3-harris-merger-proceeding-after-justice-department-ruling/