NEW YORK Feb 5 Having a former top U.S. antitrust official on board was of little use in convincing regulators to bless Anheuser-Busch InBev SA's proposed $20.1 billion takeover of Grupo Modelo.
Christine Varney, who ran the U.S. Justice Department's antitrust division before moving to private practice in 2011, led Modelo's defense of the deal, only to see her former colleagues sue to block it last week.
Dealmakers are taking that as a sign the Obama administration will be just as tough on mergers in its second term as it was in the first and that, in turn, could give pause to chief executives pursuing big deals and force buyers to offer more compensation to sellers for the risk of failure.
"Reverse break up fees," or money paid to takeover targets if the acquirer fails to complete a deal for antitrust or other reasons, have been increasing in recent years and the perception of an even bigger antitrust risk could raise them even higher, say bankers and lawyers.
Buyers should also be prepared for the likelihood that regulators might want bigger concessions as a condition of approving a merger, so the most conservative estimates should be used in assessing the benefits, dealmakers said.
"This one clearly does make CEOs sit up," said Ronan Harty, a partner at Davis Polk & Wardwell who advises clients on antitrust matters. "When CEOs are contemplating their next big deal, antitrust will be further in the front of their minds."
The lawsuit is the first major action announced by the Justice Department's antitrust division under William Baer, who took over on Jan. 3, and builds on the administration's reputation for being aggressive in reviewing big mergers.
Over the past few years, regulators have blocked deals such as AT&T Inc's $39 billion acquisition of T-Mobile, Nasdaq OMX Group Inc's $11 billion bid for NYSE Euronext and H&R Block Inc's $287.5 million deal for 2SS Holdings Inc.
Regulators have also issued far more so-called "second requests" - investigations that more fully assess the competitive implications of a deal - than during the previous administration. According to the Federal Trade Commission, 4.2 percent of transactions resulted in second requests between 2009 and 2011, up from 2.8 percent during President George W. Bush's second term.
The beer case was likely developed prior to Baer's arrival, but the new boss signing off on the lawsuit nevertheless was seen as a message.
"I do think there may be a chilling effect (on antitrust-sensitive deals)," said David Shine, co-chairman of the M&A group at Fried Frank.
"I think people have the sense that the (InBev) deal is important because it means the AT&T deal wasn't just an anomaly. This deal may therefore have people thinking that the regulatory world really has changed."
The Department of Justice could not be reached for comment.
With U.S. regulators flexing their muscles, reverse breakup fees have become more widespread. About 37 percent of merger deals included reverse breakup fees last year, up from 27 percent in 2004, according to FactSet MergerMetrics.
Fees have risen too. Reverse breakup fees averaged around 5.9 percent of a deal's value last year compared with 3.7 percent in 2004.
There have also been some deals with unusually high fees. Google Inc's $12.5 billion acquisition of Motorola Mobility Holdings in 2011 had a reverse breakup fee of $2.5 billion, 20 percent of the deal's value, while AT&T's failed $39 billion bid for T-Mobile USA the same year had a fee of $4.2 billion, or 10.8 percent.
To be sure, the vast majority of deals in any given year are completed without a review and the Obama Administration has also approved some big ones that had divided antitrust experts.
One large transaction that came under intense scrutiny was Express Scripts Holding Co's plan to buy Medco Health Solutions Inc for about $29 billion, a deal that would merge two of the top three pharmacy benefit managers in the country. While federal regulators approved the transaction last April, the decision was viewed as highly controversial by industry advocacy groups and took over eight months to review.
When Hertz Global Holdings Inc acquired smaller car rental rival Dollar Thrifty for $2.6 billion in late 2012, it took two years and dozens of divestitures to complete the transaction. To get the deal cleared by regulators, Hertz agreed to divest 29 Dollar Thrifty airport locations and to sell its Advantage brand.
"If (a company is) merging with a competitor in a concentrated market, they're going to have to be prepared to fight or give up a larger divestiture," said Eric Mahr, a partner at WilmerHale who focuses on antitrust.
"They've got to say, I'm going to be willing to fight for my merger."