Delay, or death?
Increasingly, whether I hear it is the Justice Department on the health care maintenance organization mergers, or Lam Research (LRCX) and KLA-Tencor (KLAC) , or today the Du Pont (DD) -Dow Chemical (DOW) push back until next year, as well as the huge spread between Monsanto (MON) and Bayer (BAYRY) , or Syngenta (SYT) and ChemChina or, of course, the protracted Baker Hughes (BHI) -Halliburton (HAL) tie-up, I am becoming convinced that the CEOs of this world are just getting really bad information from their lawyers.
This morning, with the news that Du Pont and Dow are admitting that their merger will be delayed until February, I am beginning to believe that there is either cluelessness or arrogance about the process.
For months I have articulated that the European government doesn't like this Dow-Du Pont merger because the ag business combination will be viewed as toxic by the farmers, a protected class in every part of the globe.
The companies keep talking about no overlap. But that's not the issue in the new world. The new world is about concentration and the incredible power that these companies might wrench one day over their clients. The regulators are thinking, wait, if we let two seed companies merge, then it will be much more likely that the two competitors will stop developing products that could compete with each other.
Du Pont and Dow intend to keep their R&D budgets the same, so the there shouldn't be anything for these regulators to worry about. But they may just ignore it.
This is a new doctrine, having to do with innovation and the stifling of innovation to create new products that could benefit the farmers.
Which brings me to, of course, Time Warner (TWX) and AT&T (T) . I think the regulators will not play by the traditional rules here. The traditional rules would say that Time Warner makes content and AT&T distributes content, so there is no overlap. The traditional rules say that if AT&T and Time Warner get together, you have a stronger competitor that can compete with others like Action Alerts PLUS charity portfolio holdings Comcast (CMCSA) or maybe Alphabet (GOOGL) or Facebook (FB) .
Yes, the traditional regulators would be considering all of these possibilities and even think about what happens to these two if they don't merge. Maybe they won't be competitive, the way the newspapers ceased to be competitive.
But the new rules say, wait, this entity could be so powerful maybe it fails to develop new product that could compete against Facebook and Google the way Verizon (VZ) is doing. Maybe they would say that the entity would be so powerful that creative types will make less. Who knows?
Of course, to these execs and their lawyers this is a traditional no brainer. Time Warner, after all, used to have Time Warner Cable (TWC) . So what's the difference? Now they would have Direct TV?
All valid points. But they are missing the big picture, which is no regulator ever got hurt saying no, particularly when both parties are now anti-trust. Who can recall a Republican candidate for president, let alone a sitting president, opining on blocking a bid from day one? What kind of naysayers would staff a Trump Justice Department Antitrust division? That's the bailiwick of the Democrats.
Plus, everywhere you look you see deals approved that people hate. The decision to create four major airlines by allowing American Airlines (AAL) to merge with US Airways and Continental to merge with United Air Lines (UAL) is perceived as one of the biggest blunders in the history of the Justice Department.
Or how about the decision to let Rexam merge with Ball Corp (BLL) -- two fierce can competitors because the Justice Department had blessed so much beer concentration? Or how about when Safeway was allowed to merge with Albertson and as part of the deal it sold overlapping supermarkets to an outfit that's now bankrupt and there's now no competition in selected towns that had some grocery store price wars to protect consumers?
Back in 1984 when I was taking antitrust at Harvard with the late great Phil Areeda, the uncontested wizard of antitrust at the time, Chevron (CVX) made a bid for Gulf, one of the most anticompetitive deals of all time. The spread was huge. I asked Areeda whether the Reagan Justice Department would bless it and he said that the antitrust division would simply look at how much potential competition there is in the oil and marketing business from so many players and bless it out of hand. I made a killing on Gulf calls. Paid for that year of law school.
Today's the opposite. They are looking to kill, not bless. I am sure if Areeda were alive and consulting today, this Time Warner-ATT deal would never even be considered. But the fees are too great for all parties, especially the lawyers and deal makers to block such blockbusters, and the break-up fees too small to matter. No one is strong enough to stand up and say "no" in an environment where fees are hard to come by. So it gets announced, it drags, and then ultimately, it doesn't get done.