4 Corporate Mergers Shot Down By the Government

Word of an unholy alliance between Comcast and Time Warner Cable has been making the news lately. They are the two largest cable providers in the United States. The companies have a combined 30 million customers nationwide, which means that if they merged, they’d control about a third of the national market for customers who pay for TV. Time Warner and Comcast are also the two largest broadband Internet providers in the country. Consumer rights advocates worry that by becoming a monolith of home entertainment companies, the companies would increase prices for those services. Since many people only have one or two options in their area for cable and Internet, they’d see their monthly rates go way up and be unable to do anything about it.

The Washington Post said the potential merger “didn’t pass the smell test” and The Week flat-out said the deal wasn’t going to happen. The reason? The Sherman Act and its close pals, the Clayton Act and the Federal Trade Commission Act.

Those acts form the basis of the antitrust system in the United States. Basically, huge companies can’t collude to create an evil super-company that monopolizes consumers and drives out competition.

Some history: By the end of the 19th century, new railroad companies were popping up left and right, and subsequently getting bought and consolidated. At the time, Senator John Sherman said that if America would not endure a king as a political power, it “should not endure a king over the production, transportation, and sale of any of the necessaries of life.” Congress unanimously passed the Sherman Act in 1890, which made it illegal for companies to restrain trade or form a monopoly.

Over the years, the government has passed more laws and guidelines to lay out exactly how and when two companies can become one. Companies are now required to submit proposed mergers to the government. At that point, the antitrust division of the Department of Justice (DOJ) decides whether they will challenge the merger in court, effectively blocking it.

The Department of Justice can sue to block a merger if they believe it will form a monopoly, cartel or trust. They can also try to block it if it will decrease competition in the market. You can’t merge if one company forbids the other to do business with anyone else (known as the “exclusive dealings” clause) or if one person will become the director of two competing organizations. The DOJ challenged 44 of the 1,429 corporate mergers proposed in 2012 (the most recent year data are available), according to the latest numbers from the Federal Trade Commission.

Here are a few of the biggest corporate mergers that were blocked by the government.

2011: AT&T and T-Mobile

In March of 2011, communications giant AT&T announced its intent to purchase T-Mobile for $39 billion. In August, the Department of Justice formally announced that it would seek to block the merger due to antitrust violations; specifically, that it would “substantially lessen competition” if second- and fourth-largest wireless carriers in America became one company. By December, AT&T admitted defeat and withdrew their bid to purchase T-Mobile.

2011: Nasdaq and the New York Stock Exchange

Nearly every publicly traded company in America is listed on either Nasdaq or the NYSE. When the two long-time rivals tried to come together in 2011, the DOJ’s antitrust chief issued a formal statement that amounted to “absolutely not:” “The acquisition would have removed incentives for competitive pricing, high quality of service and innovation in the listing, trading and data services these exchange operators provide to the investing public and to new and established companies that need access to U.S. stock markets.”

2002: EchoStar and DirecTV

When the two largest satellite TV providers in America tried to conjoin, even the FCC got involved with making sure it didn’t happen. The Federal Communications Commission voted unanimously to block the merger. In a news conference, the chairman said, “The combination of EchoStar and DirecTV would have us replace a vibrant competitive market with a regulated monopoly.” The FCC will probably be getting involved with the proposed Comcast-Time Warner merger as well.

2001: US Airways and United Airlines

US Airways has tried twice to converge with another airline into one mega-carrier, and twice, the government has put their foot down. In 2001, the DOJ put the kibosh on a potential merger with United Airlines. Their official statement said, “In the final analysis, the core of the proposed remedy … would not adequately replace the competitive pressure that a carrier like US Airways brings to the marketplace.” In 2013, US Airways announced a merger with American Airlines. The government filed an antitrust lawsuit, but the companies were able to reach a settlement and the deal went forward. The companies formally joined forces in December 2013.

Time Warner shareholders have already filed a suit to block the merger. The FCC is expected to review the formal merger request in the near future. If they OK it, the Department of Justice can still choose to file an antitrust lawsuit or set conditions the companies would have to follow if they merged, such as limiting what they can charge for services. Assistant Attorney General Bill Baer, who heads up the Justice Department’s antitrust division, has been pretty strict about mergers and antitrust laws in his tenure. But since he worked on the 2011 NBCUniversal-Comcast deal, he may recuse himself from the review process, at which point other DOJ officials would be called in for the review.