When United Technologies turned down Honeywell's recent $90.3 billion merger bid recently, the company pointed to increased scrutiny being paid to megamergers by the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) as the reason. Both regulators have mounted a spate of antitrust challenges that have tied up or blocked other major deals.
Asked by Law360 to comment on the tougher regulatory stance being taken by the FTC and DOJ, Fenwick & West partner Mark Ostrau, said the tougher climate stems from the failure of previous merger settlements to block anti-competitive behavior.
“They’re doing more looks back at how settlements fared in protecting against competitive concerns that were raised, and they’re finding that sometimes the remedies were not as effective as they might have hoped,” explained Ostrau, who chairs Fenwick’s antitrust & unfair competition group.
Ostrau also told Law360 that just the possibility that regulators will challenge a merger between market leaders can lead to developments at the companies that are "very dangerous to the benefits of a deal." This can range from stalling research and development to scaring off customers and key employees, he said.
In the current climate, he noted, it can also hurt companies to talk up a potential merger.
“To justify the deal to the investment community, the parties are often saying why it’s beneficial to each company. So if the deal is broken, these benefits go away, and the two parties may in fact be seen as weaker as a result,” he observed.
Even transparency has it pitfalls, Ostrau noted. Companies that anticipate an antitrust challenge to a major merger can increase the likelihood of gaining approval if they go to regulators with plans to address anti-competitive issues. However, highlighting the difficulties involved can backfire, he said.
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