WEBVTT - Antitrust Enforcers’ New Merger Guidelines 0:00:15.400 --> 0:00:18.280 Hello, and welcome to the Votes in Verdicts podcast hosted 0:00:18.320 --> 0:00:21.759 by Bloomberg Intelligence. We are the investment research platform of 0:00:21.760 --> 0:00:25.200 Bloomberg LP. In this podcast series, we talk about the 0:00:25.200 --> 0:00:29.160 intersection of business policy and law. My name is Jennifer 0:00:29.200 --> 0:00:32.120 Ree and I'm a senior analyst with Bloomberg Intelligence and 0:00:32.159 --> 0:00:36.000 I cover US anti trust litigation and policy. So this 0:00:36.200 --> 0:00:38.720 is the fourth of the Votes in Verdicts podcast series 0:00:38.760 --> 0:00:41.680 focused on anti trust issues, and for this episode, I'm 0:00:41.720 --> 0:00:45.199 really excited to be joined by Ira Gorski, Managing director 0:00:45.240 --> 0:00:49.440 of Edelman Smithfield, which is a financial communications boutique within 0:00:49.479 --> 0:00:52.960 the largest communications firm in the world. In this role, 0:00:53.000 --> 0:00:56.480 Ira works on special situations and investor relations such as 0:00:56.680 --> 0:01:01.920 m and A, act activism, defense, and investor narratives. Prior 0:01:02.000 --> 0:01:04.120 to his current role at Edelman, Ira worked as a 0:01:04.200 --> 0:01:06.679 risk GARB trader. Ira, thanks so much for joining me 0:01:06.720 --> 0:01:07.520 at this podcast. 0:01:07.640 --> 0:01:09.600 Thanks for having me. I'm really excited to be here. 0:01:09.680 --> 0:01:10.800 Yeah, it's going to be fun. 0:01:11.600 --> 0:01:13.920 It'll be fun for all the anti trust nerds out there, Yes, 0:01:14.360 --> 0:01:17.480 like me and me too. All Right, So Ira and 0:01:17.520 --> 0:01:19.840 I are going to be talking about new merger guidelines 0:01:19.840 --> 0:01:22.800 issued by the Federal Trade Commission and the Department of Justice. 0:01:23.280 --> 0:01:25.760 So let me just start to set the stage for 0:01:25.800 --> 0:01:28.880 the discussion with laying out exactly what they are and 0:01:28.920 --> 0:01:31.200 what their function is, because not all of the listeners 0:01:31.200 --> 0:01:34.240 of this podcast are anti trust nerds like us. So 0:01:34.400 --> 0:01:37.360 these guidelines essentially lay out the factors and the framework 0:01:37.440 --> 0:01:41.360 utilized by the agencies in reviewing transactions and determining whether 0:01:41.400 --> 0:01:43.920 a transaction has the potential to result in harm to 0:01:43.920 --> 0:01:46.880 a marketer markets and therefore it would violate the anti 0:01:46.880 --> 0:01:50.640 trust laws. So when we talk about harm to markets, 0:01:50.640 --> 0:01:55.160 it's primarily thought about as increased prices, reduced output, reduced innovation, 0:01:55.320 --> 0:01:58.800 reduced quality. And what these guidelines do is outline the 0:01:58.800 --> 0:02:01.240 step by step approach the agencies take to make the 0:02:01.280 --> 0:02:04.680 determination if a deal could impact markets in those ways, 0:02:05.200 --> 0:02:07.600 and they also outlines the factors they will or won't 0:02:07.640 --> 0:02:10.400 consider to assess whether a transaction is unlawful or not. 0:02:12.160 --> 0:02:15.920 The guidelines are really out there intended to be transparent 0:02:16.240 --> 0:02:18.320 for the public and others as to how the DOJ 0:02:18.440 --> 0:02:21.640 and FDC are reviewing deals and reaching their conclusions, But 0:02:21.720 --> 0:02:24.840 in particular they're really important to provide guidance to companies 0:02:24.840 --> 0:02:29.000 that are engaging in transactions. And that's particularly why we 0:02:29.040 --> 0:02:30.880 have IRA here today because this is what he thinks 0:02:30.919 --> 0:02:33.200 about a lot is the guidance to the companies that 0:02:33.240 --> 0:02:36.040 are thinking about proposing a deal, and particularly a deal 0:02:36.080 --> 0:02:38.960 that might have antitrust issues, because it tells us what 0:02:39.080 --> 0:02:40.760 the FTC and DOJ are going to look at in 0:02:40.800 --> 0:02:43.000 their investigation, what they're going to be thinking about if 0:02:43.000 --> 0:02:45.800 they decide to challenge the deal. Now, the very first 0:02:46.000 --> 0:02:49.040 is version of the guidelines was in nineteen sixty eight. 0:02:49.280 --> 0:02:51.799 It's the first time they were published. The most recent 0:02:51.880 --> 0:02:55.400 update before the current one was in twenty ten. So 0:02:55.520 --> 0:02:58.520 why did the FTC and DOJ decide to update them 0:02:58.880 --> 0:03:01.800 now in two thousand end of twenty three really to 0:03:01.800 --> 0:03:04.679 be implemented in twenty four Well, they say that it's 0:03:04.720 --> 0:03:08.440 to better reflect current market realities, advances since twenty ten 0:03:08.480 --> 0:03:12.120 in economics and law, and experiences of market participants that 0:03:12.160 --> 0:03:14.720 provided feedback. When they put out a draft version of 0:03:14.720 --> 0:03:16.760 the guidelines last year, they took in a lot of 0:03:16.800 --> 0:03:19.799 comments from all sorts of market participants and took those 0:03:19.800 --> 0:03:23.200 into account for the final The most important thing I 0:03:23.240 --> 0:03:25.600 would say is that they're really meant to be guidance. 0:03:25.720 --> 0:03:28.760 They're not binding on the courts, though the judges do 0:03:28.840 --> 0:03:32.720 tend to follow them and have called them persuasive. Now, 0:03:32.760 --> 0:03:34.800 Ira and I have discussed the guidelines a bit and 0:03:34.800 --> 0:03:37.240 we decided we're going to talk about some specific ones. 0:03:37.240 --> 0:03:39.120 There are eleven, to be precise, but we're just going 0:03:39.160 --> 0:03:41.480 to talk about three, and we're going to talk about 0:03:41.520 --> 0:03:43.640 their impact on deal making and what companies need to 0:03:43.640 --> 0:03:47.480 be thinking about. But before we get into those specific three, Ira, 0:03:47.720 --> 0:03:49.880 just tell me what is your overall impression of the 0:03:49.880 --> 0:03:51.160 guidelines just in general. 0:03:51.840 --> 0:03:54.160 So just to set the stage a little bit, I'm 0:03:54.200 --> 0:03:57.520 not an antitrust practitioner. I'm not an attorney that advises 0:03:57.680 --> 0:04:01.560 companies on what to do how to structure their deals. 0:04:01.840 --> 0:04:04.480 What I do is I tell companies how they should 0:04:04.560 --> 0:04:09.200 communicate during the pendency of a transaction. And what's happened 0:04:09.200 --> 0:04:13.640 with these transactions and the new guidelines is that companies 0:04:13.680 --> 0:04:19.000 are under subject of the DOJ and FTC's criticism for 0:04:19.080 --> 0:04:22.640 a longer length of time. And when you have a transaction, 0:04:22.839 --> 0:04:27.159 it affects the entire organization, affects how they do business, 0:04:27.240 --> 0:04:30.560 affects their employees. And so what this does is it 0:04:30.600 --> 0:04:34.560 causes issues for the companies, and now, given these guidelines 0:04:34.600 --> 0:04:36.960 are touching upon areas that they haven't touched upon in 0:04:37.000 --> 0:04:39.680 the past, we've got to be a lot more thoughtful 0:04:40.000 --> 0:04:42.719 in giving guidance to companies of how they communicate because 0:04:42.760 --> 0:04:46.039 it's going to have a severe impact on their business 0:04:46.160 --> 0:04:49.799 before they even get to a court if they're challenged. 0:04:50.640 --> 0:04:50.919 Yeah. 0:04:50.960 --> 0:04:54.159 Interestingly, what you're talking about is almost become kind of 0:04:54.160 --> 0:04:57.120 a tool of the agencies, right because knowing that this 0:04:57.240 --> 0:04:59.960 pendency of a long investigation and scrutiny of a merger 0:05:00.040 --> 0:05:01.720 and all the news that comes with it can have 0:05:01.760 --> 0:05:04.240 a serious impact on a company. I think in a 0:05:04.279 --> 0:05:07.360 way there's a hope or an intention by the agencies 0:05:07.400 --> 0:05:09.479 to actually just get them to walk away and abandon 0:05:09.520 --> 0:05:11.680 a deal if the agencies don't like the deal. Not 0:05:11.720 --> 0:05:14.520 all deals are anti competitive, so like that is almost 0:05:14.520 --> 0:05:15.200 a tool. 0:05:15.080 --> 0:05:19.640 Right, absolutely, And there's an irony to that as well, 0:05:19.880 --> 0:05:24.279 in that companies that are not the largest competitors in 0:05:24.360 --> 0:05:27.960 the space, ones that want to get scale to compete 0:05:27.960 --> 0:05:30.479 against the largest competitors in the space, are the ones 0:05:30.520 --> 0:05:33.960 that want to merge and get bigger so they have scale. However, 0:05:34.120 --> 0:05:38.039 they may not be quite big enough to have the 0:05:38.120 --> 0:05:43.120 ability to sustain to sustain a long attack from the 0:05:43.120 --> 0:05:45.880 anti trust regulators. So if you look at the largest 0:05:45.880 --> 0:05:49.440 competitors in the space, with literally billions of cash on 0:05:49.480 --> 0:05:53.200 their balance sheet, they're going to fight this. And what 0:05:53.320 --> 0:05:56.440 happens is, as you said, for the ones that are smaller, 0:05:56.920 --> 0:05:59.200 they're going to be under pressure to abandon it because 0:05:59.320 --> 0:06:02.599 every day that a transaction goes on, they're not making 0:06:02.680 --> 0:06:05.840 key decisions on their technology, they're not hiring key people, 0:06:06.160 --> 0:06:09.080 they could be losing some of their best employees. Their 0:06:09.120 --> 0:06:12.760 go to market strategy is also stymied by this. And 0:06:12.839 --> 0:06:15.320 then the regulators who said their goal is to block 0:06:15.360 --> 0:06:19.640 the transaction, whether it's in court or abandonment, and they'll 0:06:19.680 --> 0:06:20.840 take the victory either way. 0:06:20.960 --> 0:06:21.640 It's interesting. 0:06:21.680 --> 0:06:23.640 I mean, that's an interesting point because it's almost a 0:06:23.680 --> 0:06:27.560 perverse result, right because now essentially, because the investigations become 0:06:27.600 --> 0:06:31.600 so difficult, it really is supporting the big, huge incumbents 0:06:31.680 --> 0:06:35.760 and not promoting up and coming competition against those big incumbents, 0:06:35.760 --> 0:06:38.400 which is really what we need, what the. 0:06:38.320 --> 0:06:42.159 Agencies exactly, because the ones that can slug it out 0:06:42.240 --> 0:06:46.000 with the government and stand up to the full weight 0:06:46.080 --> 0:06:50.200 and resources are the biggest and the strongest right, and 0:06:50.240 --> 0:06:53.039 the ones that are a tier below that could potentially 0:06:53.640 --> 0:06:56.719 be competition for the biggest and the strongest will fold 0:06:56.800 --> 0:07:01.280 under that pressure. So yes, it is a perverse incentive. 0:07:01.800 --> 0:07:04.880 So let's move on. You wrote a short article I 0:07:04.880 --> 0:07:07.440 saw it on LinkedIn. Everybody should look for it on LinkedIn. 0:07:08.839 --> 0:07:12.200 A quick interesting read published a few weeks ago, called 0:07:12.360 --> 0:07:15.240 and you called it less visibility and a more complex narrative. 0:07:15.360 --> 0:07:16.800 Why that title? What did you mean by that? 0:07:17.320 --> 0:07:23.800 Because historically the level of antitrust enforcement has to do 0:07:23.880 --> 0:07:26.560 with which the which parties in power. But it was 0:07:26.600 --> 0:07:29.080 the general framework was the same. It was it was 0:07:29.120 --> 0:07:33.240 a level of enforcement, but the guidelines were the same 0:07:33.560 --> 0:07:36.880 of where they would be now. I think with the 0:07:36.920 --> 0:07:42.200 new guidelines it has changed substantially. You're introducing new elements 0:07:42.200 --> 0:07:45.560 that weren't there before. You and I have spoken offline about, 0:07:45.800 --> 0:07:49.080 you know, the difference in the consumer harm standard where 0:07:49.160 --> 0:07:51.280 the consumer harm, if you could think about it, was 0:07:51.360 --> 0:07:54.040 more broadly, and even these new guidelines are still keeping 0:07:54.080 --> 0:07:57.600 the new the consumer in mind. I have a slightly 0:07:57.680 --> 0:08:00.920 different view. I think that the consumer or harm standard 0:08:01.240 --> 0:08:04.720 is very specific to price an output, and that the 0:08:04.800 --> 0:08:08.600 other elements that are now being included, such as labor 0:08:09.000 --> 0:08:14.520 and suppliers, really upend the whole narrative. The less visibility 0:08:14.560 --> 0:08:19.880 part is because if in a merger, as an ARB, 0:08:20.240 --> 0:08:21.880 I would see the press release, one of the things 0:08:21.880 --> 0:08:24.680 you look for immediately is the synergy number. Because the 0:08:24.720 --> 0:08:29.720 synergy number is especially cost energies. It's captured in perpetuity, 0:08:29.960 --> 0:08:32.680 so it's really valuable if you can extract a lot 0:08:32.679 --> 0:08:37.520 of synergies both from labor in terms of layoffs and delayering, 0:08:37.880 --> 0:08:42.439 as well as your supply chain. However, in the guidelines 0:08:42.480 --> 0:08:49.280 now the antitrust enforcers are specifically targeting that, and then 0:08:49.360 --> 0:08:53.359 that really upends the visibility with how companies should be communicating. 0:08:53.679 --> 0:08:56.280 Yeah, it's interesting because I practiced a long time ago, 0:08:56.440 --> 0:08:58.520 and you know, when we would do our presentations to 0:08:58.559 --> 0:09:01.000 the FDC or DOJ as to why the deal had 0:09:01.040 --> 0:09:03.800 lots of efficiencies and have all sorts of pro competitive benefits, 0:09:03.840 --> 0:09:07.000 you would proudly put that bullet point about all you know, 0:09:07.040 --> 0:09:09.720 the redundancies and employment and all the layoffs that would 0:09:09.760 --> 0:09:12.240 come that would save these companies' money. And now that's 0:09:12.720 --> 0:09:14.640 moved from the pro side to the conside. 0:09:15.040 --> 0:09:16.439 You know, which is a big shift. 0:09:16.480 --> 0:09:20.640 Right, And because the premise used to be if I 0:09:20.760 --> 0:09:25.199 can extract these cost savings, then I will pass that 0:09:25.600 --> 0:09:28.640 savings along to the consumer because it makes me more competitive, 0:09:29.000 --> 0:09:33.079 and with the savings, I can keep my margins and 0:09:33.120 --> 0:09:35.800 capture share. But now that's upended. 0:09:35.920 --> 0:09:36.559 It's upended. 0:09:36.640 --> 0:09:39.800 Yeah, the agencies don't necessarily think that way anymore. I 0:09:39.840 --> 0:09:43.040 think they don't really see those benefits being passed on 0:09:43.080 --> 0:09:45.760 to consumers. Yeah, I can keep my margin, maybe I 0:09:45.760 --> 0:09:48.880 can increase my margin, is what they're thinking, rather than 0:09:48.960 --> 0:09:51.840 pass those benefits on. And you know that's why they've 0:09:51.880 --> 0:09:53.880 taken a different change of heart here. 0:09:54.840 --> 0:10:00.720 Completely agree. And so there's a confluence of factors work 0:10:00.760 --> 0:10:04.120 into pricing strategy and how you go to market, and 0:10:04.160 --> 0:10:06.640 it's going to be incredibly difficult, even with the best 0:10:06.640 --> 0:10:11.760 of intentions and full transparency to specifically say how much 0:10:11.800 --> 0:10:15.600 of your current pricing strategy is related to synergies or 0:10:15.679 --> 0:10:18.520 the shift in the market. But the regulators have taken 0:10:18.559 --> 0:10:22.720 a more skeptical view, and now they're including other things 0:10:22.760 --> 0:10:24.960 like the supply chain and labor, which I think is 0:10:25.559 --> 0:10:30.080 very problematic for the communications of the deal itself. 0:10:30.600 --> 0:10:33.200 Right now and now we're veering off into what into 0:10:33.240 --> 0:10:35.120 the topics we wanted to get into. You know, the 0:10:35.160 --> 0:10:37.000 thing is, there have been a lot of webinars by 0:10:37.080 --> 0:10:39.640 law firms and other entities about these new guidelines. They're 0:10:39.640 --> 0:10:41.560 a big deal, right, they are a big change, and 0:10:41.960 --> 0:10:43.840 as I said before, it's the first time we've had 0:10:43.840 --> 0:10:46.480 an update since twenty ten, and so what I wanted 0:10:46.520 --> 0:10:48.520 to do was take a bit of a different approach, 0:10:48.800 --> 0:10:50.840 I think than some of the other webinars they focus. 0:10:50.960 --> 0:10:53.880 They have focused a lot on the fact that the 0:10:53.960 --> 0:10:57.559 agency's reduced thresholds by which they presume a deal to 0:10:57.640 --> 0:11:00.320 be anti competitive, which means it'll more deal will be 0:11:00.360 --> 0:11:03.840 captured as potentially violating antidrus law. But instead, what we're 0:11:03.880 --> 0:11:06.280 going to do is focus on three specific guidelines. There 0:11:06.280 --> 0:11:09.160 are eleven in total, and we're going to focus on 0:11:09.240 --> 0:11:13.360 three that IRA thinks really are important for companies from 0:11:13.360 --> 0:11:16.120 a communications perspective, and I think they're really important too, 0:11:16.520 --> 0:11:18.400 because the three we're going to focus on our really 0:11:18.400 --> 0:11:21.840 brand new concepts for merger review and for guidelines. So 0:11:22.000 --> 0:11:25.000 let me just when I talk about the eleven guidelines 0:11:25.000 --> 0:11:26.400 and the three we're going to talk about, let me 0:11:26.480 --> 0:11:29.679 just sort of explain what the FTC and DJ did 0:11:29.880 --> 0:11:33.480 in the guidelines one through six are different from seven 0:11:33.520 --> 0:11:36.920 through eleven. They describe distinct frameworks that they're going to 0:11:37.080 --> 0:11:40.880 use in the very first instance, to decide whether a 0:11:41.000 --> 0:11:44.720 merger raises antitrust concerns. And so I saw most of those, 0:11:44.800 --> 0:11:47.600 most of them, not all of them, as a restatement 0:11:47.760 --> 0:11:50.160 of the standard way that we think about, or used 0:11:50.160 --> 0:11:52.520 to think about deals that may violate the antidrust laws, 0:11:52.600 --> 0:11:55.120 though they've been refined and the standards have been tightened. 0:11:55.400 --> 0:11:57.640 So and I just want to throw this in there 0:11:57.640 --> 0:12:00.160 because I don't want to gloss over it. Right, So, 0:12:00.320 --> 0:12:03.240 for instance, mergers that raise mergers raise a presumption of 0:12:03.280 --> 0:12:07.439 illegality when they significantly increase concentration in a highly concentrated market. 0:12:07.480 --> 0:12:08.559 That's not new, you. 0:12:08.520 --> 0:12:10.920 Know, this has been the this has been the way 0:12:10.920 --> 0:12:13.280 we think about mergers that can be illegal for years 0:12:13.280 --> 0:12:15.920 and years. But what these guidelines do is lower the 0:12:15.920 --> 0:12:18.800 threshold for what is considered a highly concentrated market. And 0:12:18.840 --> 0:12:21.280 that's a pretty big deal. But that's going to be 0:12:21.440 --> 0:12:23.680 a topic for another day, because today we're going to 0:12:23.720 --> 0:12:26.640 talk about three of the guidelines in seven through eleven, 0:12:27.040 --> 0:12:31.040 and those guidelines explain how to apply the frameworks in 0:12:31.040 --> 0:12:33.400 one through six and specific settings. And what we're going 0:12:33.440 --> 0:12:36.800 to start with is Guideline nine. As I said, it 0:12:36.840 --> 0:12:39.200 introduces a new concept into merger review and it is 0:12:39.240 --> 0:12:42.760 related to multi sided platforms. IIRA, can you talk through 0:12:42.920 --> 0:12:46.720 what this guideline says about deals that involved multi sided platforms? 0:12:46.920 --> 0:12:50.040 Sure? So, before I get into that, I think this 0:12:50.240 --> 0:12:53.400 is one of the mean motivations of why we have 0:12:53.520 --> 0:12:57.320 new guidelines, because you wound up with these incredibly powerful 0:12:57.360 --> 0:13:02.199 platforms that didn't fit need lee into a horizontal merger guideline, 0:13:02.520 --> 0:13:05.280 nor did they fit into a vertical merger guideline. And 0:13:05.360 --> 0:13:07.640 even if they did fit into a vertical merger guideline, 0:13:07.640 --> 0:13:09.840 they haven't been able to be enforced. They haven't had 0:13:09.880 --> 0:13:13.320 a great success for vertical not at all. So the 0:13:13.320 --> 0:13:19.000 guideline considers competition between platforms, competition on the platform, and 0:13:19.080 --> 0:13:23.720 competition to displace the platform. Now I think this is 0:13:23.840 --> 0:13:26.640 problematic and that I don't mean that from the intention 0:13:26.880 --> 0:13:29.240 of the DOJ or the FDC. I just mean how 0:13:29.280 --> 0:13:31.680 it's going to work out and practice and how you 0:13:31.840 --> 0:13:36.319 articulate your rationale and how they view it. So, for example, 0:13:37.280 --> 0:13:40.760 it's got multiple parts to it, and where they have 0:13:41.120 --> 0:13:46.080 is a conflict of interest. And the conflict of interest 0:13:46.200 --> 0:13:52.520 I think is very subjective because you're making a platform 0:13:52.600 --> 0:13:56.240 for your own benefit almost by definition. And there are 0:13:56.280 --> 0:13:59.880 certain things that are overt where you exclude I can 0:14:00.120 --> 0:14:03.680 patitor from your platform at all, or you put them 0:14:03.679 --> 0:14:07.040 further down on the page. But there's a whole continuum 0:14:07.080 --> 0:14:10.640 of subtleties of where you could be on that. And 0:14:10.880 --> 0:14:13.559 I think it's going to be very difficult for companies 0:14:13.600 --> 0:14:18.480 to explain that something isn't a conflict of interest because 0:14:18.559 --> 0:14:23.320 if you have that accusation that it is, you have 0:14:23.560 --> 0:14:27.040 almost no evidence to refute it because it hasn't happened yet, 0:14:28.080 --> 0:14:34.240 and the anti trust agencies are loath to accept behavioral remedies, 0:14:34.880 --> 0:14:37.360 So you're being accused of something you haven't done yet. 0:14:37.680 --> 0:14:39.960 You can't promise not to do it in the future. 0:14:40.920 --> 0:14:46.360 And these are fast moving technological platforms that the FTC 0:14:46.480 --> 0:14:50.240 and DJ are making assumptions on. You know, I said 0:14:50.280 --> 0:14:53.720 to you jokingly before. These are the agencies that sue 0:14:53.720 --> 0:14:57.600 to stop Hollywood Video and Blockbuster exactly, so you know 0:14:57.680 --> 0:15:00.960 their ability to predict the future actually on fast moving 0:15:01.000 --> 0:15:03.520 technology is questionable. 0:15:04.320 --> 0:15:07.320 Yeah, and I think, I mean, merger assessment is all 0:15:07.360 --> 0:15:09.680 about trying to predict the future, and in particular in 0:15:09.800 --> 0:15:10.760 technology markets. 0:15:10.800 --> 0:15:12.320 I think that's really really difficult. 0:15:13.320 --> 0:15:16.160 And I think also what's notable I agree with you completely, 0:15:16.920 --> 0:15:19.400 and I think also what's really notable about this particular 0:15:19.760 --> 0:15:22.520 guideline is that it's sort of the first time the 0:15:22.520 --> 0:15:25.560 agencies come right out and say, well, we could consider 0:15:25.600 --> 0:15:28.640 a deal harmful where the companies don't compete at all horizontally, 0:15:28.680 --> 0:15:30.840 don't provide any of the same products or services, and 0:15:30.880 --> 0:15:33.720 by the way, don't even have a vertical relationship. You know, 0:15:33.880 --> 0:15:37.800 there's no connection necessarily in the marketplace. And that's really new, 0:15:38.560 --> 0:15:40.320 kind of a big departure from the way we think 0:15:40.360 --> 0:15:45.080 about mergers. Okay, our next guideline is number ten. Again 0:15:45.160 --> 0:15:48.000 a new one, but it does reflect an area the 0:15:48.080 --> 0:15:51.680 agencies have focused on a lot in the past few years, 0:15:51.720 --> 0:15:53.840 in which we already talked about a little bit earlier 0:15:53.920 --> 0:15:59.040 in this podcast, and that's the impact of deals on employees, suppliers, 0:15:59.080 --> 0:16:00.920 and other providers. This is what we think about as 0:16:00.960 --> 0:16:03.760 a monopsony concern, where they're too few buyers of a 0:16:03.800 --> 0:16:06.560 product or service rather than too few sellers. So I 0:16:06.640 --> 0:16:08.640 wrote talk about this one. I know you wrote about 0:16:08.680 --> 0:16:11.680 this in your article what is this guideline? Saying what 0:16:11.680 --> 0:16:13.200 does it mean for merging companies? 0:16:14.480 --> 0:16:18.120 I think this opens up a lot of problems for companies, 0:16:18.360 --> 0:16:21.920 especially on the labor side, because there's always a natural 0:16:21.960 --> 0:16:26.760 tension between management and labor. Everyone's fighting for the same resources. 0:16:26.960 --> 0:16:32.040 So then this becomes something that could be extracted used 0:16:32.040 --> 0:16:36.560 as a wedge issue when labor has the ability to 0:16:36.840 --> 0:16:40.760 go to the government and have them on their side, 0:16:41.280 --> 0:16:44.520 raise potential issues and use it to their benefit for 0:16:44.600 --> 0:16:49.520 labor negotiations when there really isn't an antitrust concern. This 0:16:49.600 --> 0:16:52.440 also starts falling into the realm of more political than 0:16:52.480 --> 0:16:55.960 empirical with respect to evidence, because you have a certain 0:16:56.000 --> 0:16:59.640 difference with respect to the parties and their view of labor. 0:17:00.360 --> 0:17:04.359 And then that creates an issue as well, because the 0:17:04.520 --> 0:17:08.760 economics will hold regardless of who's in power. So if 0:17:08.800 --> 0:17:13.399 you force companies into an uneconomic arrangement where you wind 0:17:13.480 --> 0:17:18.600 up killing pro competitive deals for a political choice on labor, 0:17:18.640 --> 0:17:21.359 you're going to wind up harming the economy. And so 0:17:21.440 --> 0:17:26.920 it becomes very difficult from a communications standpoint. Companies will 0:17:26.960 --> 0:17:31.480 now have to think through these issues because they have 0:17:31.560 --> 0:17:35.240 to deal with labor. The employees are a very very 0:17:35.240 --> 0:17:38.760 important part of all mergers. So for example, when we 0:17:38.920 --> 0:17:43.360 have a merger communications package, one of the key stakeholders 0:17:43.440 --> 0:17:46.080 is the employees talking to them what it means, what 0:17:46.119 --> 0:17:49.480 your role is, why this is important, how this benefits everyone. 0:17:49.680 --> 0:17:54.879 You know, other stakeholders like investors and vendors, etc. But 0:17:54.960 --> 0:17:58.359 you don't have a company without the employees. And my 0:17:58.560 --> 0:18:04.040 big concern is that it opens the door for bad 0:18:04.080 --> 0:18:08.600 actors for using a tool that wasn't available to them 0:18:08.640 --> 0:18:12.879 previously to potentially harm the merger, which could wind up 0:18:12.920 --> 0:18:16.480 hurting the company and the interest of employees. So it 0:18:16.560 --> 0:18:19.200 becomes really tricky from a communications standpoint. 0:18:19.600 --> 0:18:21.720 Yeah, and in particular, as you mentioned, with these really 0:18:21.760 --> 0:18:25.199 long investigations, you want to hold on to your good employees, 0:18:25.280 --> 0:18:27.360 and now you risk losing them because there's a lot 0:18:27.359 --> 0:18:30.240 of uncertainty about what the final entity is going to 0:18:30.240 --> 0:18:32.600 look like at the end of this big FTC or 0:18:32.680 --> 0:18:37.160 DOJ investigation, potential challenge, et cetera. Interestingly, I raised. 0:18:36.960 --> 0:18:37.600 With you earlier. 0:18:37.680 --> 0:18:41.440 The FTC's lawsuit fouled yesterday against the Kroger and Albertson's 0:18:41.480 --> 0:18:43.639 proposed deal. And I know you haven't dug into that 0:18:43.760 --> 0:18:46.920 yet too much, but in that complaint, this we see 0:18:46.920 --> 0:18:50.119 this theory in action because in that as part of 0:18:50.160 --> 0:18:52.400 their theory of harm, in that complaint, the FTC has 0:18:52.440 --> 0:18:55.600 alleged that Kroger and Albertson's compete for labor and that 0:18:55.680 --> 0:18:57.880 this is going to reduce competition for labor and could 0:18:58.000 --> 0:19:01.720 hurt workers respect. So we're going to see how this 0:19:01.760 --> 0:19:02.560 plays out in court. 0:19:03.440 --> 0:19:06.480 Yeah, it is that again that goes to an assertion 0:19:06.640 --> 0:19:13.600 that you can't disprove how do you prove that you're 0:19:13.640 --> 0:19:18.240 limiting the availability of labor or the competition for labor 0:19:18.280 --> 0:19:21.760 when people can freely move you There is no finite 0:19:21.800 --> 0:19:24.679 set of people in a given area. There is no 0:19:25.080 --> 0:19:29.040 specific skill set that's locked you know, down that you 0:19:29.080 --> 0:19:32.080 can move right and and it makes it very difficult. 0:19:32.160 --> 0:19:35.560 But in this case, interestingly, and this really I think 0:19:35.640 --> 0:19:38.320 makes it difficult to refute in court. But the FTC 0:19:38.480 --> 0:19:40.159 they have to define a market, right, they have to 0:19:40.200 --> 0:19:42.920 say what is the sphere of the market in which 0:19:43.000 --> 0:19:45.800 competition will be harmed? And their market for labor was 0:19:45.840 --> 0:19:50.119 defined very narrowly it was in localized areas union traditional 0:19:50.119 --> 0:19:54.280 grocery store workers essentially, which is really narrow because and 0:19:54.280 --> 0:19:56.520 who's to say that somebody who's working at a grocery 0:19:56.520 --> 0:20:00.920 store couldn't go work somewhere else, you know, no, doing 0:20:00.960 --> 0:20:03.600 something different, or move from grocery to drug store. 0:20:03.440 --> 0:20:04.400 Or you know what I mean. 0:20:04.440 --> 0:20:07.000 So it's a very narrow market. So it's hard to 0:20:07.000 --> 0:20:09.840 refute that there won't be harm in that narrow market. 0:20:09.960 --> 0:20:12.280 And that makes it even harder, right. 0:20:12.160 --> 0:20:16.560 Of course, And so when you make the markets incredibly narrow, 0:20:16.600 --> 0:20:21.240 they're going to be anti competitive by definition ramifications exactly. 0:20:21.800 --> 0:20:22.080 All right. 0:20:22.200 --> 0:20:23.960 Our last guideline we're going to talk about is the 0:20:24.040 --> 0:20:27.760 last guideline, and that's eleven. It's another new concept, as 0:20:27.760 --> 0:20:30.040 I mentioned, and this one is really interesting to me 0:20:30.080 --> 0:20:32.959 because I'm not really sure how it's going to get applied. 0:20:32.960 --> 0:20:36.240 But it deals with partial ownership and minority interests. So 0:20:36.800 --> 0:20:39.480 according to the guidelines the agency, they are concerned with 0:20:39.520 --> 0:20:42.399 something called cross ownership, and that refers to holding a 0:20:42.440 --> 0:20:45.560 non controlling interest in a competitor. And they're also concerned 0:20:45.560 --> 0:20:49.000 with something called common own ownership, which occurs when individual 0:20:49.040 --> 0:20:52.119 investors hold non controlling interests in firms that have a 0:20:52.160 --> 0:20:56.160 competitive relationship. What are your thoughts on this one. 0:20:56.600 --> 0:20:59.920 I think this is potentially very damaging for investment over 0:21:00.160 --> 0:21:04.840 all because generally people don't want to tangle with the government. 0:21:05.200 --> 0:21:10.160 It's a huge distraction, very expensive, high stakes, your reputations 0:21:10.200 --> 0:21:16.880 out there, and if you have opaque rules where you 0:21:16.920 --> 0:21:20.240 can't disprove where you are, you can't. You can have 0:21:20.280 --> 0:21:23.320 a passive stake, but then if you're viewed as well 0:21:23.359 --> 0:21:27.520 you have a passive stake into competitors, maybe you're using 0:21:27.560 --> 0:21:32.960 that information in an unlawful way. It's incredibly difficult to 0:21:33.000 --> 0:21:33.600 disprove that. 0:21:33.920 --> 0:21:34.240 Sure. 0:21:34.320 --> 0:21:36.880 Yeah, and then I think this is also kind of 0:21:37.000 --> 0:21:38.640 a shot against private equity. 0:21:38.800 --> 0:21:41.680 Absolutely, and so this is. 0:21:41.640 --> 0:21:46.560 A broader negative view of private equity, which certain people 0:21:46.600 --> 0:21:50.919 could argue is more political from an investment class standpoint. 0:21:52.359 --> 0:21:55.480 And then when you get into it, to solve it, 0:21:55.520 --> 0:21:59.480 the only really advice that you can give to solve 0:21:59.480 --> 0:22:02.000 it ahead of time time is you've got to think 0:22:02.040 --> 0:22:05.080 through all these potential issues. So you may have a 0:22:05.119 --> 0:22:09.880 passive investment a company that you've invested and then maybe 0:22:09.960 --> 0:22:13.560 do subsequent acquisitions that then imperil you, even though you 0:22:13.600 --> 0:22:18.520 don't control management. The only thing that I could really 0:22:18.560 --> 0:22:20.879 think through is you would do what we refer to 0:22:20.880 --> 0:22:25.000