Delrahim Announces Merger Review Policy Shift in What Some Call Bad News for AT&T/TW
DOJ will increase scrutiny of takeovers that offer to change corporate behavior rather than selling off assets to address competitive concerns, Antitrust Chief Makan Delrahim said Thursday at an American Bar Association meeting. Delrahim said so-called "behavioral remedies" included in several recent transactions such as Comcast buying NBCUniversal, Google/ITA and LiveNation/TicketMaster to address anticompetitive concerns may have a place "if it will completely cure the anticompetitive harms." But a large body of legal research over years provided evidence such an approach creates an ongoing regulatory function to monitor conditions that runs counter to allowing the market to function freely, Delrahim said. The remarks could bode trouble for AT&T/Time Warner, experts told us.
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
Antitrust enforcers "have experimented with allowing illegal mergers to proceed subject to behavioral commitments. That approach is fundamentally regulatory, imposing ongoing government oversight on what should preferably be a free market," Delrahim said. Citing a recent letter to the attorney general by 11 senators complaining about the “lack of enforceability and reliability of such conditions," Delrahim expects DOJ to "cut back on the number of long-term consent decrees we have in place and to return to the preferred focus on structural relief to remedy mergers that violate the law and harm consumers" as part of the administration's overall focus on reducing regulation.
Delrahim "clearly disfavors federal regulation via merger conditions, but he did not totally reject behavioral remedies if a vertical deal can only achieve positive efficiencies through the proposed merger and the conditions are a complete solution," said Paul Glenchur, Hedgeye Potomac Research senior telecom and cable analyst. "Whether before or after a lawsuit is filed, that's the window that might be open to AT&T. Somewhat ominously, he seemed generally critical of the Comcast/NBC consent decree." BTIG's Rich Greenfield thinks "there's a path forward, but the ball's in AT&T and Time Warner's court," he told us Thursday. Greenfield said Tuesday that DOJ seems likely to block the deal (see 1711140049) unless significant divestiture demands are met, which AT&T signaled it isn't willing to do. "Both sides can change, but it's hard to imagine that anything other than a structural remedy is possible," he said. AT&T did not comment.
"Behavioral remedies often require companies to make daily decisions contrary to their profit-maximizing incentives," Delrahim said, and "demand ongoing monitoring and enforcement." That "overly intrusive" approach amounts to "the wolf of regulation dressed in the sheep’s clothing of a behavioral decree." Many thought Comcast/Time Warner Cable would be approved subject to behavioral conditions since neither company competed for downstream customers, Delrahim said, "but I understand that the FCC and DOJ rejected that approach and the merger was abandoned." Without providing specifics, Delrahim said behavioral remedies "have proven challenging to enforce." He added: "We will take seriously our obligations as law enforcers to ensure full compliance with judgments already in place."
"There's been growing awareness that behavioral remedies have problems," The Konkurrenz Group's Allen Grunes told us. "It's fair to say that this criticism isn't new." Structural remedies may be "more permanent and less costly to enforce" than behavioral, but that doesn't necessarily yield net benefits, said Technology Policy Institute President Scott Wallsten. "One thing that's good regardless of where you stand on the merger is that -- setting aside the question of the president's influence -- the argument is focusing on merger-related antitrust issues, and our institutions, particularly DOJ, have the tools and framework to make a coherent decision." Candidate Donald Trump expressed concerns on AT&T/TW.
Delrahim cited 2004 DOJ remedy guidelines warning against conduct remedies, but the 2011 updated version indicated such remedies can be an effective method for dealing with competition concerns raised by vertical mergers, Wallsten said. "There is no consensus on which is better," he said. "At a minimum, the DOJ should take into account how remedies will affect the benefits that it believes will flow from the deal."
AT&T has the "right overarching position that it is a vertical merger and there is no anti-trust issue to be dealt with and [it] will prevail in court" but it appears DOJ "is intent on more than behavioral remedies, "Raymond James analyst Frank Louthan wrote investors. The department's concern seems to center on streaming services and conglomeration of assets like Turner Sports, HBO Go, MLB Network, AT&T SportsNet and Root Sports Northwest may lead DOJ to view the transaction as a ''horizontal merger within a vertical merger," he said. Noting the telco's willingness to be subject to "reasonable oversight," Louthan is "confident in the deal's merits and AT&T's ability to find a solution that is acceptable to get the transaction closed."
In reviewing AT&T/Time Warner, Justice may be "unfairly changing its antitrust enforcement rules of the game, mid-game, to try and block the merger without the required reasonable DOJ procedural fairness," blogged Chairman Scott Cleland of NetCompetition, with members including the acquirer. "To promote fair and equal antitrust administration in the U.S. and around the globe, only Congress or the Courts, not DOJ antitrust prosecutors, can legitimately change the core parameters of antitrust enforcement policy towards a merger -- mid-transaction review."