Spooked dealmakers scurry back into their foxholes

A fox searches through the grass for food along the edge of a farmer's field outside Regina
A fox searches through the grass for food along the edge of a farmer's field outside Regina, Saskatchewan July 23, 2006.

NEW YORK, March 23 (Reuters Breakingviews) - Jonathan Kanter, a lawyer by training, has become something of a magician. As one of the top cops on the U.S. competition beat, he is making corporate deals disappear. His lawsuits against Google steal the show. Pay closer attention, however, and Kanter is methodically rewriting a decades-old regulatory playbook.

Now more than a year into the job, it’s evident the assistant attorney general for the Department of Justice’s antitrust division is pushing beyond the agency’s usual merger policing. He has forced competing companies to eject overlapping board members, pursued criminal charges against monopolistic behavior, put a greater focus on labor issues, and plenty more besides, in a bid to cut down on perceived anticompetitive behavior.

Individually, each initiative tackles a small or arcane subject. Collectively, they add up to a big headache for dealmakers, one that is forcing buyers to shoulder a greater portion of regulatory risk in transactions, or to go back to the drawing board altogether. With many of the usual maneuvers to avoid trustbuster ire now useless, risk-averse chief executives probably will wait until the new rules of the antitrust road look clearer. They also may bide their time to gauge whether the DOJ’s efforts hold up in court, as well as which way the political winds blow, to see just how much of Kanter’s program sticks.

The retrenchment for now has been significant. Roger Altman, who started his investment banking career at Lehman Brothers in 1974 and opened boutique advisory shop Evercore in 1995, said competition policy today is the “most challenging one, or tightest one, I can remember seeing.” He suggests that the combined efforts by Kanter and his counterpart at the Federal Trade Commission, Lina Khan, are affecting up to 20% of contemplated transactions, where competition issues are a consideration.


Many of these consequences play out behind closed doors. “Those [deals] which have been shelved because of this new environment aren’t visible,” Altman recently told CNBC. “No one can see them or count them up, but I can assure you that there are a lot of them.” There’s other anecdotal evidence supporting the assessment. In February, $17 billion steelmaker Tenaris (TENR.MI) became at least the fifth company to abandon a takeover on the eve of an anticipated lawsuit from Kanter’s department.

The impact also can be inferred elsewhere. Reverse termination fees, or how much an acquiror agrees to pay a seller if a deal falls through, have risen, according to Refinitiv data, an indication that sellers are negotiating for insurance against the crackdowns. Last year, these breakup charges reached their highest level in a decade, at an average 4.5% of deal prices. They recently started to retreat, a possible sign that buyers are instead scrapping competitively thorny acquisitions entirely.

Aerojet Rocketdyne (AJRD.N) provides a stark indication of how the calculus has changed. In late 2020, the rocket engine maker agreed to be acquired by Lockheed Martin (LMT.N) without putting the defense contractor on the hook financially if the deal failed to close. Regulatory opposition torpedoed it in February 2022, and when L3Harris Technologies (LHX.N) agreed later the same year to buy Aerojet for $4.7 billion, it offered to pay over $400 million, or nearly 9% of the price tag, if competition authorities don’t give their blessing.

The DOJ’s ambitious agenda under Kanter, whose Washington office is decorated with art inspired by the Monopoly board game, is perhaps clearest in its accusations that Google illegally dominates the market for online advertising and violated competition law by using its power to elbow aside rivals, an argument the company calls “flawed.” Potentially the most important antitrust case since the DOJ sued Microsoft (MSFT.O) in 1998, it is also the first time in some 50 years that the agency has sought monetary damages and asked for a jury trial in a civil case under Section 2 of the Sherman Antitrust Act of 1890, which bans monopolization. The pushback also stretches beyond Big Tech.


The many new legal complexities will inevitably infuse discussions among deal practitioners gathering this week at the annual Tulane Corporate Law Institute. There is an array of novelties to consider.

Just last month, Kanter’s office yanked “outdated” guidance originally issued in 1993, and two subsequent related policy statements, that carved out “antitrust safety zones” for hospital mergers, physician joint ventures and other information sharing in the medical business. Although these rules of thumb were designed to help facilitate deals that would lower costs in healthcare, over the years they have been applied far and wide. Absent any replacement directive, competition lawyers have been left scratching their heads on how to advise acquisitive clients.

Kanter also secured the first criminal conviction in a monopolization case in decades. The DOJ’s trustbusters are hounding directors who simultaneously serve on the boards of their competitors, a violation of the Clayton Act’s prohibition on so-called interlocking directorates. And they’re putting a greater emphasis on competitive harm inflicted on labor markets, not just on rivals or consumers.

For example, even after the government allowed Cargill and Wayne Farms owner Continental Grain to complete a joint $4.5 billion takeover of poultry processor Sanderson Farms without a challenge, Cargill, Wayne, Sanderson and data consulting firm WMS agreed to pay $85 million to settle antitrust allegations that they conspired for more than 20 years to stifle competition by swapping wage and benefits information with each other.

The Department of Agriculture partnered with the DOJ on the case, another feature of Kanter’s plan of attack. He has signed cooperation agreements with the Federal Maritime Commission, the National Labor Relations Board and other agencies to coordinate on competition matters. Likewise, other regulators, including the Federal Communications Commission, increasingly stand ready to rally behind a broader effort to prevent certain mergers.

Kanter is also beefing up his internal firepower, hiring more than just lawyers and economists. The “business school faculty,” as he describes the expansion, includes data scientists and other expertise that augurs even more legal twists for boardrooms to look forward to. It would be surprising if his team wasn’t sifting through the array of whopping price hikes over the past year in search of monopolistic behavior.

Faced with this aggressive antitrust regime, CEOs will be understandably apprehensive about pursuing takeovers that carry even a vague hint of lessening competition. Despite its many successes, however, the DOJ risks getting too ambitious. The agency’s new tactics must ultimately stand up in court. The record is mixed so far. It has lost criminal no-poach and wage-fixing trials and also failed to stop UnitedHealth’s (UNH.N) bid to buy Change Healthcare and U.S. Sugar’s deal for Imperial Sugar. As legal weaknesses emerge, dealmakers should be in position to better structure transactions and defend themselves at trial.

Still, they may wait to see just how many of Kanter’s efforts survive. While there is some political consensus against consolidation, such as reining in technology goliaths, a Republican administration would unlikely be as active on the competition front as this one. Another antitrust magician could easily come along and make Kanter’s breakthroughs vanish.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates with graphic.)

Editing by Jonathan Guilford and Sharon Lam

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