Biden's antitrust cops turn dealmaking into improv

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U.S. President Joe Biden holds a formal news conference in the East Room of the White House, in Washington, D.C., U.S., January 19, 2022. REUTERS/Kevin Lamarque

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NEW YORK, Jan 19 (Reuters Breakingviews) - The easiest time to stop a merger is before it starts. Just over six months into the leadership of Lina Khan, the U.S. Federal Trade Commission has slowed the process to get even run-of-the-mill mergers through antitrust review, potentially making some would-be deal participants think twice. Joined by Jonathan Kanter, the recently installed antitrust chief at the Department of Justice, Khan has now unveiled the next step in deterring dealmakers.

Spurred by an executive order from President Joe Biden and a $5.8 trillion flood of deals in 2021, the FTC and DOJ have begun the process of tearing up the current framework for deciding whether to challenge deals, and creating a new one. The agencies have traditionally focused on econometric models that specify what level of market concentration is problematic and what kinds of harms to consumers the government will not accept. Khan and Kanter suggested in Tuesday's press conference, however, that they want to move away from “static formalism” towards something more "holistic."

Kanter questioned foundational concepts of antitrust analysis, such as defining relevant markets and distinguishing between horizontal and vertical mergers. Khan said that the current system has mostly been good for delivering “massive fees” for investment banks. It's only the start of the process, but one possible end result is a situation where watchdogs have wide-ranging discretion, making it that much harder for dealmakers to know whether a proposed combination of companies could cross a line.

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Challenges to mergers on subjective grounds might not hold up if deal parties take the agencies to court, where judges often take a narrow view. But that might not be the point. Potential buyers and sellers might shy away from risking it at all. Sellers could demand higher prices or more insurance against a deal being blocked. This week’s $69 billion deal by Microsoft (MSFT.O) to purchase video-game publisher Activision Blizzard (ATVI.O) carries a hefty break fee of up to $3 billion, payable if it doesn't get across the antitrust line.

Corporate chiefs and bankers would prefer to see clear rules, even if they are tougher. But Biden's Democratic camp includes plenty of merger skeptics. For them, cutting off as many deals as possible at the source may be the goal. If Khan and Kanter throw up more hurdles that are intentionally hard to foresee, they may succeed in doing just that.

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CONTEXT NEWS

- Federal Trade Commission Chair Lina Khan and Department of Justice competition chief Jonathan Kanter on Jan. 18 said in a joint press conference that they had begun the process of revising the agencies’ merger guidelines. These documents lay out the methods by which the FTC and DOJ analyze deals to determine whether they pose a competitive threat.

- To start the process, the agencies are requesting input from the public on merger enforcement, releasing a questionnaire that asks for views on the current framework for analyzing deals.

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Editing by Richard Beales and Sharon Lam

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