Liberal Groups Support Bill Banning Most M&As During Crisis

By McCord Pagan
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Law360 (May 8, 2020, 8:51 PM EDT) -- Congress' top two Democratic leaders were urged by more than two dozen liberal and progressive groups Friday to pass a planned bill that would ban most mergers and acquisitions by companies over a certain size while the country recovers from the COVID-19 pandemic.

In a letter to Senate Minority Leader Chuck Schumer, D-N.Y., and House Speaker Nancy Pelosi, D-Calif., the groups urged the congressional leaders to pass the Pandemic Anti-Monopoly Act, which is intended to stop large corporations and investment funds from exploiting the outbreak and its economic impact by snapping up struggling businesses through predatory acquisitions.

The letter says that without congressional action, large corporations may use bailout funds to merge with or buy distressed businesses, which could further exacerbate the problem of corporate power.

"If Congress does not stop big corporations from using public money to buy their competitors, we will see a tsunami of corporate mergers that will devastate workers, small businesses, and the communities they support," Sarah Miller, executive director of American Economic Liberties Project, said in a statement Friday.

The letter was signed by groups including the American Economic Liberties Project, MoveOn, Greenpeace USA, Public Citizen and Americans for Financial Reform.

Late last month, Sen. Elizabeth Warren, D-Mass., and Rep. Alexandria Ocasio-Cortez, D-N.Y., said they would introduce the Pandemic Anti-Monopoly Act, which would impose a moratorium on mergers and acquisitions that currently need to be reported to the federal agencies for antitrust review. The bill would also ban all transactions involving companies with more than $100 million in revenue or financial institutions with a market capitalization of over $100 million, according to a statement at the time.

Transactions involving private equity and hedge funds would also be barred under the proposal, as would deals by companies with patents covering products affected by the current crisis, such as personal protective equipment.

The moratorium would remain in place until the Federal Trade Commission "unanimously determines that small businesses, workers and consumers are no longer under severe financial distress," the statement said.

Earlier this week, however, Republicans on the FTC pushed back against such a proposal, arguing fears of predatory transactions are at best misplaced and overblown.

FTC Commissioner Noah Phillips argued in a blog post Tuesday — expanding on an essay he published in The New York Times late last month —that economic crises like the one caused by the current pandemic actually slow down mergers and acquisitions activity. He said companies have less cash, less financial certainty and less flexibility to negotiate and pursue mergers, belying fears from congressional Democrats that companies are poised to "exploit" the crisis.

"Experience bears out those expectations. Consider our last bear market, the financial crisis that took place over a decade ago. Publicly available FTC data show the number of [Hart-Scott-Rodino Antitrust Act] reported transactions dropped off a cliff," the commissioner said. "During fiscal year 2009, the height of the crisis, HSR reported transactions were down nearly 70% compared to just two years earlier, in fiscal year 2007. Not surprising."

In his post for the Truth on the Market blog, Phillips insinuated that Democrats calling for a merger stoppage are simply trying to push a larger anti-merger agenda.

"In the past two weeks, some of the same people who sought to stop mergers and acquisitions during the bull market took the opportunity of the COVID-19 pandemic and the new bear market to call to ban M&A," he said.

Those calls came as recently as Tuesday, when House antitrust subcommittee Chairman David N. Cicilline, D-R.I., and other lawmakers said in a letter to Pelosi and House Minority Leader Kevin McCarthy, R-Calif., that the next COVID-19 relief package should include a prohibition on any transactions that don't involve companies in dire financial straits.

"In light of this reality, we write to respectfully urge you to include a merger moratorium in the next stimulus bill in order to halt the wave of predatory mergers and takeovers that risk further concentrating wealth and power and decimating independent business," the lawmakers said.

Last month, Cicilline called for a moratorium on merger activity to be included in the next coronavirus relief bill. He argued that corporate takeovers permitted during the last financial crisis resulted in lost jobs, reduced investment and less innovation. But he also called for a carveout for deals involving firms that are failing or in bankruptcy.

However, Phillips and fellow Republican Commissioner Christine S. Wilson have argued antitrust enforcers have shown themselves to be up to the task of reviewing mergers and contesting anti-competitive ones, especially thanks to a reduced burden because of dramatic reductions in merger filings during the pandemic.

"Despite changes in where agency employees do their work, the FTC is conducting the business of the commission without interruption. Our work is as important now as ever, and we remain committed to protecting consumers and competition," Wilson said in a tweet May 1.

Requests for comment left with Sen. Schumer's and Rep. Pelosi's offices after hours Friday were not immediately returned.

--Additional reporting by Matthew Perlman, Bryan Koenig and Anne Cullen. Editing by Janice Carter Brown.

For a reprint of this article, please contact reprints@law360.com.

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