Losing Trust in Antitrust Regulation

 |  Includes: JPM, OATS, SIRI, TAP, WFM
by: Mike Steinhardt

I’ve lost trust in the merits of antitrust regulatory decisions. As a free trade capitalist, you might expect that I would love to approve any deal. That is not the case. Some mergers are certainly anti-competitive and hurt consumers and should not be approved.

In theory, I actually support the regulatory reviews for antitrust / anticompetitive mergers. But when I look at recent cases, I cannot help but wonder where our priorities are.

Sirius (NASDAQ:SIRI) and XM (XMSR) have been under review for about 16 months and sometimes I question whether they’ll survive before the regulators decide what to recommend. Some interests are being protected here, but I think that has more to do with the traditional broadcasters, their lobbyists and their political power than it does with the guy driving down the street trying to listen to some tunes.

How about the nonsense surrounding the FTC’s desire to block the Whole Foods (WFMI) and Wild Oats (OATS) deal for about 6 months? Cornering the organic grocery market? Oh my, you might have to pay higher prices for organic food! Did any of the regulators ever notice that organic foods were more expensive than the chemical-laden stuff sold at regular grocers before the deal was announced? Maybe they could better protect consumers and help reduce food inflation by telling their buddies in government to stop all these farm bills, crop subsidies, ethanol fiascoes, etc.

Monopoly, Duopoly or Oligopoly power is an important consideration for our government. And yet - when the average person they are supposedly protecting looks at the deal and wonders why it’s being blocked, then there is a problem. When it takes forever to get the antitrust decision announced, then there is a problem. And when some deals get fast track approval, there is a problem.

Let’s look at the merger of JP Morgan (NYSE:JPM) and Bear Stearns and how that was handled from a regulatory approval perspective. If Bear Stearns and JP Morgan hadn’t needed a bailout to avoid global financial meltdown, how long do you think it would have taken to approve the merger? Look at other bank mergers or how long it took to get clearance for deals like JPMorgan and Bank One when the credit markets were not in crisis mode and it’s a bit different.

I know it’s impossible to expect that this deal would have had one agency of government dare criticize the “independent Federal Reserve” and their role as the broker in this transaction, but this deal needed regulatory approvals, “including all antitrust clearances from or notices to” the following: “SEC, FINRA, FERC, the FSA, the Financial Services Agency of Japan, the Federal Reserve Board, the CFTC, the DOJ, the FTC, various foreign and state securities authorities, and various other federal, state and foreign regulatory authorities and self-regulatory organizations.” (source for that quote was the SEC filings on this deal.) They managed to get all that done in a matter of weeks. Impressive…. but appropriate?

Maybe you can say that the Bear Stearns regulatory approval should have been done really fast because it would apparently have hurt consumers if it was not done. But is that the standard of the antitrust concept? Is it okay to approve a deal if it avoids a catastrophe but may lead to higher prices or less competition? You decide. But can you honestly say that the Bear Stearns merger was less important to consumers and society as a whole than something like Organic Food Retailers or Satellite Radio?

In the grand scheme of things…. does anyone want to bet how many billions or trillions this rubber-stamped antitrust transaction (Bear Stearns / JPMorgan) will cost us compared to how much the failed blocking of Whole Foods will cost organic food consumers?

I’ve lost trust in antitrust.

In the SAB Miller - Molson Coors (NYSE:TAP) proposed transaction - here is the DOJ decision and a snippet:

“After a thorough, eight-month investigation, during which the Division obtained extensive information from a wide range of market participants — including the companies, rival brewers, beer distributors, and national retailers — the Division has determined that the proposed joint venture between Miller and Coors is not likely to lessen competition substantially.

“In one of the key parts of the investigation, the Division verified that the joint venture is likely to produce substantial and credible savings that will significantly reduce the companies’ costs of producing and distributing beer. These savings meet the Division’s criteria of being verifiable and specifically related to the transaction and include large reductions in variable costs of the type that are likely to have a beneficial effect on prices."

Eight months to decide a case about beer. Less than that month for a case about Bear Stearns. MMMMMMMM. I love cases of beer. I don’t love cases of Bear.

And sooner or later, they’ll get to decide the InBev / Bud case. They’ll probably find that the merger will save expenses for the brewers and therefore, it must mean that consumers will benefit from it. MMMMMM. I love beer. Cheaper prices means that people can afford to drink more beer. MMMMMMM - beer. All is well.

Not really, because this “approve if costs are lowered” concept seems to be the current measuring stick in antitrust approvals from either the DOJ or FTC or the FCC or the appropriate regulatory agency. The logic of this does not work too well for me. Here are some painful examples - Exxon and Mobil or Chevron and Texaco or Conoco and Phillips. I am confident that those mergers lowered costs for Big Oil, but how did energy prices do since then for consumers? NOPE - I am not suggesting that the mergers are the reason for high gas prices. I am just saying that getting antitrust clearance (like the SAB Miller / Molson Coors example) just because it “significantly reduce(s) the companies’ costs of producing and distributing” whatever product does not mean those expense savings will be passed on to consumers.

I have lost trust in antitrust.

I have been confused by the reasons for blocking some mergers. On the other hand, I don’t believe that all mergers are inappropriately approved. I just believe that it’s hard to convince me that many mergers that get antitrust clearance end up with lower consumer prices, better competition and more product innovation. I see how they usually help speculators and investors. I see how the financial industry racks up huge advisory fees. I see how these mergers often help companies save costs. I see how it helps lobbyist groups and politicians. As for helping consumers, I have don’t have much trust in antitrust.