Regulatory Policy

Biden’s Regulators Leave the Future of Mergers and Acquisitions Uncertain

Headquarters of Illumina in San Diego, Calif., September 1, 2021. (Mike Blake/Reuters)
Regulators are turning the 40-year-old merger-review process into a guessing game.

Businesses have had a clear pathway to legal consolidation for over 40 years. But regulators are now turning the process into a guessing game.

In September 2020, Illumina, a genomics company, acquired cancer-screening startup Grail for approximately $8 billion. One year later, the Federal Trade Commission (FTC) is trying to unravel the deal.

Under normal circumstances, this acquisition would have progressed without incident. Illumina already had strong ties to Grail: It founded the startup in 2015 and spun it off in 2017, retaining a 20 percent stake thereafter. According to former FTC Commissioner Joshua Wright, the agency should have approved the transaction because, among other reasons, Grail operated in a separate market and had a highly differentiated product. But in August, the FTC filed an administrative complaint and authorized a federal court to block the acquisition.

The Illumina case comes on the heels of sweeping agency changes, which are poised to disrupt the world of business and the laws it relies upon.

The Hart-Scott-Rodino Antitrust Improvements Act of 1976 set forth a clear framework for merger reviews. Companies must file pre-merger notifications with the FTC and the Antitrust Division of the Justice Department for high-value transactions. A deal cannot be completed until the expiration of the 30-day statutory waiting period. This process is meant to focus regulators’ efforts on large rather than small transactions, in addition to giving companies some assurance that their deal won’t be upended ex post facto.

These long-standing expectations have guided mergers and acquisitions for decades. But in the span of a few months, Chairwoman Lina Khan has discarded due process and replaced it with confusing and arbitrary policies. In September, the FTC withdrew vertical-merger guidelines that were adopted just last year, without issuing new guidance. The agency then announced it would continue investigations beyond the Hart-Scott-Rodino waiting period and expand the scope of “second requests,” subpoena-like inquiries that are already very broad.

Antitrust compliance is now a matter of guesswork. During the FTC’s open meeting on September 15, Darren Tucker, antitrust practice chair at Vinson & Elkins LLP, noted that attorneys have recently been receiving highly unusual questions regarding merger investigations. According to Tucker, “agency staff have requested information regarding how the proposed transaction will affect unionization, ESG policies, or franchising.” These are topics that the agency staff have neither the experience nor the jurisdiction to review. From a political standpoint, it’s clear why questions about labor and the environment, key issues for Democrats, are popping up where they don’t belong.

Politics has no place in antitrust. Competition policy has been shaped over decades of fine-tuning and, for over 40 years, has operated upon a bedrock of sound economic analysis. But as Commissioner Noah Phillips warned, the agency is “knocking over guardrails that are intended to keep [them] from politicizing antitrust and throwing up roadblocks to the much needed job creation, economic growth, and innovation.”

Indeed, frivolous antitrust enforcement can have disastrous effects on innovation. According to Illumina’s CEO, the acquisition would enable the company to expedite the roll-out of Grail’s cancer-detecting blood test, thereby preventing an estimated 90,000 to 100,000 cancer deaths each year. Yet the FTC argues that the acquisition would “lessen competition in the U.S. multi-cancer early detection test market by diminishing innovation and potentially increasing prices.” There are currently no rival cancer-screening tests on the market, nor is there evidence of price discrimination.

Grail’s blood tests can have a profound impact on public health, but Americans may never see it because of the FTC and its speculative accusations of harm.

Ultimately, the FTC’s irresponsible approach to mergers is failing at its primary objective. Rather than addressing misconduct, the agency is discouraging lawful and potentially beneficial dealings. Businesses are reading the room and proactively terminating their business combinations. The startup community, which relies upon mergers as an exit strategy, is nervously watching where antitrust policy is headed next. No one knows — and that’s the problem. Regulators are tossing due process and the rule of law to the curb to make way for broad and discretionary power. That’s not healthy for competition, and serves no value for the American public.

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Rachel Chiu is a contributor and technology fellow for Young Voices. Her work has been featured in USA Today, The Hill, RealClearMarkets, City A.M., and elsewhere.

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