The Biden administration is suddenly racking up some big antitrust wins. That could force executives to think twice about new acquisitions in 2024, acting as yet another damper on dealmaking.
Last week a federal court sided with the Justice Department’s request to block JetBlue’s (JBLU) $3.8 billion acquisition of rival Spirit Airlines (SAVE). Last month a separate federal court agreed with the Federal Trade Commission's view that biotech giant Illumina’s (ILMN) $7.1 billion reacquisition of Grail violated antitrust law.
JetBlue and Spirit Airlines are appealing a judge's ruling that blocked their planned merger. (AP Photo/Wilfredo Lee, File) ·ASSOCIATED PRESS
Other proposed mergers hang in the balance as federal officials conduct antitrust reviews, from the tie up of air carriers Alaska (ALK) and Hawaiian (HA) to grocery chains Kroger (KR) and Albertsons (ACI) to amusement park giants Six Flags (SIX) and Cedar Fair (FUN).
The FTC also said Thursday it had launched an inquiry into investments by Microsoft (MSFT), Amazon (AMZN) and Google (GOOG, GOOGL) in artificial intelligence startups OpenAI and Anthropic. FTC head Lina Khan said she wants to determine whether "partnerships pursued by dominant companies risk distorting innovation and undermining fair competition."
Microsoft CEO Satya Nadella, right, greets OpenAI CEO Sam Altman at an event last November. Microsoft is a major investor in OpenAI. (Photo by Justin Sullivan/Getty Images) ·Justin Sullivan via Getty Images
The rhetoric from Washington is "anti-merger," and "I've heard from corporate lawyers that, they think, on the margin, there are deals that may be getting deterred by that," said Debbie Feinstein, head of Arnold & Porter’s global antitrust practice and former competition director for the FTC.
"Because even if they think they can get them through, they think it will take longer, they may have to litigate, and they may want to not have to do that."
More companies are increasingly getting so-called "second requests" from federal officials that require additional information that can delay deal reviews, added Jonathan Gleklen, a partner with Arnold & Porter’s antitrust group.
Regulators "were issuing second requests like they were Halloween candy," Feinstein said. "There are deals that get second requests that I think would not have gotten second requests in prior administrations."
The end result is that companies "are factoring this into the calculus of their next M&A moves," noted William Huynh, an antitrust attorney with Linklaters. "In some cases, this means walking away from potential deals."
A mixed track record
The Biden administration has made it clear from the start that it would be trying to limit what it referred to in a 2021 executive order as "excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly."
That stance was reinforced again last year with new merger guidelines that made it clear the Justice Department and FTC will seek to limit the concentration of power in key industries.
Federal Trade Commission Chair Lina Khan. (Photo by Drew Angerer/Getty Images) ·Drew Angerer via Getty Images
These warnings coincided with a two-year-long slowdown in dealmaking across the business world as executives turned more cautious about the economic outlook and geopolitical unrest.
Last year was the worst year in a decade for revenue from investment banking, a pullback that dragged down results across Wall Street.
But the administration's track record in actually stopping deals from happening once they were announced had not been great until recently.
The FTC, in fact, has been handed some high-profile defeats in some prominent cases, including suits to stop Microsoft's acquisition of game developer Activision Blizzard and Meta's acquisition of virtual reality app developer Within.
'This one's for you'
Washington is having more success with the airline industry, however.
First a federal judge agreed with the Justice Department that a partnership between JetBlue and American Airlines (AAL) to coordinate routes and schedules in the northeast section of the US would be anti-competitive, a ruling that forced the carriers to end that agreement last year.
Then this month another federal judge blocked the union of JetBlue and Spirit, the sixth-largest and seventh-largest airlines in the US, arguing that removing Spirit as an independent carrier would mean higher prices for consumers.
"To those dedicated customers of Spirit, this one’s for you," wrote the judge, William Young.
What was notable about the scuttled deal is that it turned in part on a novel DOJ theory, according to Gleklen, the partner with Arnold & Porter’s antitrust group. Federal officials argued Spirit Airlines operated in a different market than traditional passenger airlines because it offered ultra low-cost fares.
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"That's a more aggressive theory," he said, explaining that past airline merger challenges treated commercial air carriers as equals, regardless of the average fare prices.
TD Cowen airline analyst Helane Becker said she expected the judge overseeing the challenge would ultimately let the JetBlue-Sprit deal go through.
But "I think the DOJ wound up making a strong case and issued concerns for low fares in the South Florida market, especially for visiting friends and relatives because that's a big part of Spirit's business plan."
The ruling, though, does present challenges to both companies and raises questions about what's next — particularly for Spirit, whose clock is ticking with $1.1 billion in debt due in September 2025. The carriers have said they will appeal the ruling.
"When you do a little more digging, you find that Spirit may have a hard time surviving without this merger," Becker said.
Some of these same legal theories will get another test as the Justice Department soon is expected to weigh in on another proposed merger between Alaska (ALK) and Hawaiian.
Alaska and Hawaiian Airlines planes take off at the same time from San Francisco International Airport. (Photo by Tayfun Coskun/Anadolu Agency via Getty Images) ·Anadolu Agency via Getty Images
Some analysts don’t think that tie-up will meet the same fate but investors are watching the developments closely.
"We’d be lying to ourselves if we thought the probability of a successful merger had not been lowered," Deutsche Bank airline analyst Michael Linenberg said in a note last week.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.
