By Brent Kendall
WASHINGTON--Corporate deal making is at an eight-year high at
the same time the Obama administration's antitrust enforcers are on
their strongest footing ever, setting up a tug-of-war over industry
consolidation.
The corporate executives and government officials now on
opposite ends of the rope are in different places than when
President Barack Obama took office in 2009, during the financial
crisis. The president had pledged to reinvigorate antitrust
enforcement, but his appointees at the Justice Department and
Federal Trade Commission arrived at a time when the business
community's appetite for significant mergers was limited.
Now, with the merger market emboldened by a favorable economic
climate, antitrust enforcers, too, are gaining confidence, in part
because of a favorable political climate. Members of both parties
worry about companies growing in a way that could harm the
economy.
"I think there's no question both agencies have taken a somewhat
more aggressive approach to antitrust enforcement over the past
several years, particularly in the second half of the Obama
administration," said antitrust lawyer Barry Nigro of Fried, Frank,
Harris, Shriver & Jacobson LLP.
"The more the government wins, the greater the level of
confidence," Mr. Nigro added. And, "there are just a lot more deals
than there were five or six years ago," he said.
Developments this week highlighted the breadth of the antitrust
agencies' recent efforts. On Wednesday, the Justice Department
filed suit to block General Electric Co.'s planned $3.3 billion
sale of its appliance business to Electrolux AB. Like some others
facing antitrust challenges, the companies vowed to vigorously
defend the deal.
Hours before, the department confirmed it was investigating
whether the nation's top airlines colluded on expansion plans.
On Tuesday, the department won a major appeals-court decision
affirming an earlier court ruling against Apple Inc. that found the
company liable for conspiring with publishers to raise the prices
of e-books.
Department officials also are gearing up to scrutinize any
mergers between top U.S. health insurers, which are courting one
another for deals.
Two blocks down Pennsylvania Avenue, FTC officials were
celebrating a win over would-be merger partners Sysco Corp. and US
Foods Inc. The big food distributors abandoned their $3.5 billion
deal Monday after a federal judge sided with the FTC.
Now, agency officials are getting ready for another court case,
set to begin next month, in their l awsuit challenging a $1.9
billion combination of infection-prevention provider Steris Corp.
and U.K. peer Synergy Health PLC.
Other pending deals are getting a close look from the agencies.
The Justice Department is closely scrutinizing Expedia Inc.'s $1.3
billion takeover of rival Orbitz Worldwide Inc. and Halliburton
Co.'s plan t o buy oil-field services rival Baker Hughes Inc.
The FTC, meanwhile, has been scrutinizing the proposed merger of
office-supply retailers Staples Inc. and Office Depot Inc., a deal
the agency derailed when the companies tried it nearly 20 years
ago.
Corporate clients looking to do deals are aware of the agencies'
enforcement activities and are moving antitrust risk assessments
toward the top of their deal checklists, said Mr. Nigro, the
antitrust attorney.
Despite the uptick in enforcement, many deals still are getting
approved, even after detailed reviews by the government. The FTC
recently cleared Reynolds American Inc.'s acquisition of rival
cigarette maker Lorillard Inc. and on Thursday gave a green light
to Dollar Tree Inc.'s deal to buy Family Dollar Stores Inc. after
the discounters agreed to divest 330 stores.
"I don't think the level of activity is materially different
from historical norms, recognizing that there is some streakiness
to it," said William Blumenthal of Sidley Austin LLP, former
general counsel at the FTC. As the pool of deals increases, the
number that raise problems are likely to increase, too, he said.
"That's just the numbers."
Some policy watchers, however, say government officials have
shown a clear willingness to go to court, and that they are on a
winning streak.
"The DOJ and FTC litigation success is influential," said George
Washington University law professor William Kovacic, a former FTC
chairman during George W. Bush's administration. "That's how you
get the attention of companies and the bar."
What's tougher to gauge, he said, is whether the previous
administration would have brought similar cases. He said that some
of the deals being challenged appear to threaten the type of
concentration that has traditionally concerned enforcers of both
political parties.
The government's run of successes includes Comcast Corp.'s
decision in April to abandon its planned acquisition of Time Warner
Cable Inc., amid enforcers' concerns that a bigger Comcast could
harm video programmers and the broadband market.
Days later, Justice Department objections helped sink a deal in
the semiconductor industry, between Applied Materials Inc. and
Tokyo Electron Ltd. In March, the department watched as two leading
movie-theater advertising firms, National CineMedia Inc. and
Screenvision LLC, folded tent on their planned tie-up, just ahead
of a trial on the government's lawsuit to block the merger.
The Sysco matter was the commission's highest-profile merger
case in eight years. The FTC's three Obama appointees had a lot
riding on the outcome because the commission's two Republicans
didn't support the lawsuit.
Last month, a federal judge in Washington ruled that combining
the nation's top two food distributors was likely to suppress
competition and hurt restaurants and other food-service
businesses.
The Sysco ruling made investors in Staples and Office Depot
jittery about whether it might embolden the FTC to take a harder
line on the proposed tie-up of the two retailers. Shares in both
companies dropped after the ruling.
The Justice Department's antitrust chief, Bill Baer, and other
officials at an American Bar Association conference this spring
suggested companies at times may be pushing the envelope in an
exuberant climate for deals. "There are some ideas that should
never get out of the boardroom," Mr. Baer said.
On Wednesday, antitrust lawyer Joe Sims, representing Electrolux
in the GE deal, said the department's effort to block the
transaction was inconsistent with the agency's 2006 decision under
the Bush administration to approve Whirlpool Corp.'s acquisition of
Maytag Corp. The biggest different between the two Justice
Department outcomes, he said, "is we have a different set of
decision-makers."
Antitrust lawyers say Mr. Baer at the Justice Department and
Debbie Feinstein, the competition chief at the FTC, aren't shy
about following their convictions in making decisions.
Both have served multiple stints at the antitrust agencies, and
both have extensive private-practice experience--at the law firm
Arnold & Porter--representing merging companies.
"Both of them take their government representation very
seriously, just as they did when they were representing companies
and individuals," said Fried Frank's Mr. Nigro.
Not everyone regards the agencies' latest antitrust moves as a
sign of strength. Some critics cite the agencies' handling of
airline-industry consolidation as an example.
Cleveland State University law professor Christopher Sagers,
said the Justice Department allowed the airline industry to grow
more concentrated when it settled a 2013 lawsuit and allowed
American Airlines' AMR Corp. and US Airways Group Inc. to
merge.
"DOJ missed its shot," Mr. Sagers said. "It was the antitrust
mistake of the century."
Thomas Gryta and Drew Fitzgerald contributed to this
article.
Write to Brent Kendall at brent.kendall@wsj.com
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