Fair Play: Merger Lovers, Beware the New FTC

There could soon be a new sheriff at the Federal Trade Commission. Early signals from Joseph Simons, President Donald Trump’s pick to head the agency, point to more rigorous merger review.

The White House’s package of four FTC nominees — Simons plus three commissioners — is proceeding at a healthy clip through the Senate. All the nominees have submitted their written responses to questions from the Senate Commerce Committee.

The four nominees — Simons (R), Noah Phillips (R), Christine Wilson (R), and Rohit Chopra (D) — will appear as a group for their confirmation hearing on Wednesday. If they move through the Senate as a block, there would still be one more opening for a Democratic commissioner.

M&A lawyers will be listening to learn just how serious Simons is about cracking down on merger proposals. If his written comments to the committee are any indication, they should be worried. He cited weak merger review — the FTC’s lack of retrospective studies and unsuccessful remedies — as the No. 1 and No. 2 problems facing the agency.

“The FTC needs to devote substantial resources to determine whether its merger enforcement is too lax,” he said. “If that’s the case, the agency needs to determine the reason for such failure and fix it.”

Simons decried the FTC’s own finding that the divestitures it imposed in 30 percent of mergers between direct competitors didn’t work. Those are deals in which the FTC ordered one or both merging parties to sell assets to a buyer that, in theory, would compete with the merged company. But the FTC found that didn’t happen in almost a third of the markets where it ordered divestitures, either because the buyer never produced a competing product or its product wasn’t able to compete as effectively as the pre-merger owner.

Simons said a 30 percent failure rate is “too high and needs to be lowered substantially, or, ideally, zeroed out altogether.”

The FTC’s 2017 study is based on older mergers, from 2006 to 2012, in part to give the post-merger markets time to adjust so the agency’s economists could accurately evaluate them. A more recent example of the kind of outcome that may trouble regulators happened last year when the FTC cleared Walgreens Boots Alliance to buy 1,932 Rite Aid stores. A month later, Walgreens announced it was closing 600 of them.

The commission had blocked Walgreens’ earlier bid to buy some 3,000 of Rite Aid’s stores, saying that deal would zero out competition in too many markets. But it took Walgreens no time after its smaller deal closed to find some overlapping areas and slate those 600 stores for closure. It will take several years to tell whether rivals can survive in the drug store market where Walgreens is the biggest player. If that doesn’t happen, it’s another sign of failure.

Read more in Fawn Johnson’s antitrust blog, Fair Play. She can be reached on Twitter at @fawnjohnson. The web link is http://src.bna.com/wkV.