The Antitrust Landscape in 2020

Before Covid-19 the economy was in high gear.  The stock market was at an all time high, unemployment was at an all time low, and companies were announcing mergers and acquisitions left and right.  The economics of this is simple:  In a roaring economy companies have a lot of cash to finance takeovers and gain market share.  And even more, the costs of convincing the Justice Department and Federal Trade Commission to allow these takeovers are relatively low... or they were.   The approval process is riddled with regulations that require expensive lawyers and long trials, and in the Trump economy these requirements are slowly disappearing and thus lowering the marginal cost of acquiring or merging with another company.  Now that the coronavirus crisis has increased the odds of a Biden presidency, the marginal costs of going through the Antitrust Approval Process are skyrocketing, and companies are burning through their cash.  Most mergers and acquisitions are being put on hold, but delaying these massive deals are just as costly as cancelling them and approaching the costs of fighting the government and being denied, which is the most expensive outcome.  

In my industry there were a couple of massive mergers announced right before the crisis:  

• Charles Schwab & TD Ameritrade to create the largest financial services firm ever with total client assets reaching $5 Trillion
• Morgan Stanley & E*Trade to create a similar firm
• Sun Trust & BB&T - this one went through rather quickly and is now known as Truist Bank

These are likely to continue to go through, although I'm sure there was some panic on the M&A team (merger and acquisitions) as soon as the crisis hit the United States. 

The FTC and DOJ are primarily tasked with enforcing the current Antitrust laws, and in 2019 they sent some mixed signals.  The FTC blocked razor company Schick from absorbing Harry's Razors, but that same week they allowed Sprint to merge with T-Mobile.  I remember reading it in the Wall Street Journal and it was on the same page.  From my perspective, the former merger makes more sense because of the prinicples of economies of scale, e.g. Schick can more easily pass on cost savings to consumers through increasing their output with Harry's more efficient production line.  The Sprint / T-Mobile merger approval struck me as odd because these two companies, along with Verizon and other data providers, bid on spectrum procurement contracts - e.g. 4G and 5G allowances - which are less likely to pass on cost savings to consumers, in my opinion.  The moral hazard factor is more extreme on the spectrum auctions because of the intertwinement with the government.  Ask me for some good readings on this if it sparks your interest. 

And finally, as if the situation wasn't already bad enough, indictments on the chicken industry exec's for price fixing, a collusive practice, were finalized.  Executives at Pilgrim's and Claxton Poultry Farms are facing charges.  "The indictments come amid growing concern among farmers, grocery stores and restaurants that declining competition among a smaller number of big meatpackers is pushing up meat prices for  consumers while reducing farmers' and ranchers' income," Brent Kendall and Jacob Bunge write on the Wall Street Journal Article.  

In conclusion, the Antitrust landscape is a dynamic one and constantly changing.  From a game theory perspective, we are on a totally different decision-tree path than where we expected.  Cash is drying up, costs of merging are increasing as the FTC and DOJ are signaling enforcement and the threat of returning to a heavily regulated economy return, as well as the uncertainty of the crisis.  Rumor has it TD Bank is going to sell their stake in the new Charles Schwab - TD Ameritrade merger to finance a United States bank takeover to increase the footprint in the United States, which currently only spans from Maine to Florida not including Georgia.  However, I think this rumor has no footing due to the changing landscape.   TD Bank has a lot to gain by participating with the merger and could benefit from it in the westward expansion process, and could leverage their position in regards to the intellectual property of the TD name in the new firm.