The Secret to a Happy Mega Merger in the Obama Era: Go Vertical!
The massive corporate mergers that have passed muster with the Obama administration all have something in common, and it's a disappointment for consumers.
The Obama years have been a fascinating time for corporate mega mergers. After two terms of supremely lax antitrust enforcement under President George W. Bush, the new administration arrived in 2009 vowing to bring new scrutiny to corporate marriages. AT&T's decision to call off its nuptials with T-Mobile, which faced stiff resistance from the Federal Communications Commission and the Justice Department, is just the latest sign the Obama folks were serious.
Yet, you may recall some of the big, hulking exceptions to the new get-tough stance. Kabletown...I mean Comcast...was allowed to run away with NBC, much to the consternation of free media advocates. And Ticketmaster hitched itself to the world's largest concert promoter, Live Nation, despite warnings that the two would create a near monopoly in live entertainment.
So what's the secret to sneaking a giant merger past regulators these days? Today, The Wall Street Journal has a great breakdown of Obama administration's approach. Horizontal mergers, where corporations buy up their direct competitors, are getting the red light. But vertical mergers, where corporations buy companies in related industries, are getting the go signal. The paper sums it all up nicely in this graphic:
So what's it mean for those of us who don't make a living pondering the complexities of antitrust law?
From a consumer standpoint, it's a bit disappointing, because both kinds of mergers give ample reason for worry. If two huge competitors decide to call a truce and join forces in a horizontal deal -- think T-Mobile and AT&T -- they can create a run-of-the-mill monopoly. That's the classic situation antitrust law was designed to stop. When companies buy up pieces of their supply chain in a vertical deal, the problems are more subtle, but still very real. Take the Comcast-NBC merger. Before it was approved, many, including The New York Times, warned that Comcast might cut its competitors off from NBC programming or use its ownership of the network to stunt the growth of web-based TV. In other words, there was worry that Comcast would use access to NBC as a weapon to smother the competition.
But despite those kinds of concerns, stopping vertical deals in court might simply be too challenging. Per the WSJ:
In vertical deals, companies often have an easier time arguing they can bring about savings and lower prices for consumers. "It's much more difficult for the government to convince a court to block a merger on a vertical theory," said Robert Bell, an antitrust lawyer at Kaye Scholer LLP in Washington.
Instead of going to the mat with these companies in a potentially losing battle, the administration has chosen to get concessions around the edges of deals to address specific competition concerns. So your cable company can own your favorite show, and your ticket vendor can own your favorite concert venue. But at least AT&T doesn't get to gobble up your phone service. We'll have to take what we can get.