| NEW YORK
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
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
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
"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