A top United States antitrust official on Wednesday spoke out against a proposed moratorium on big corporate mergers during the coronavirus pandemic.
Makan Delrahim, the assistant attorney general for the powerful Antitrust Division of the US Department of Justice (DOJ), said in a US television interview the proposed moratorium was “misguided”.
Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez proposed the “Pandemic Ant-Monopoly Act”, which would “stop large corporations from exploiting the pandemic to engage in harmful mergers”.
Companies with more than $100mn in revenue, financial institutions – and most private equity partners and hedge funds – would not be allowed to acquire or merge until the US economy is no longer under financial stress from the virus.
“It would be misguided to just block all attempts for transactions,” Delharim said during an interview with business news network CNBC.
Some transactions may be “very necessary” to keep companies alive and workers employed during the economic shutdown, Delrahim said.
Delrahim said the DOJ’s Antitrust Division would not review proposed mergers during the pandemic with its “head in the sand”, a metaphor for ignoring potential anticompetitive consequences.
Instead, he said, the division would impose a three-part “failing firm” test to assess whether a deal that might otherwise be deemed anticompetitive should be allowed, Delrahim told CNBC.
A company must prove that it is unable to meet its financial obligations or reorganise its debt through bankruptcy – and verify that it has already made a good faith effort to find a less anticompetitive buyer, Delrahim told CNBC.
The economic distortions of the coronavirus shutdown are leading to a wave of potential new mergers.
Online giant Amazon, which offers a streaming video service, is rumoured to have interest in AMC Entertainment, a cinema operator and picture producer, CNBC reported.
The ride-hailing service Uber, whose business has been hurt by the shutdown, made an offer to buy Grubhub, which is benefitting as people order more food from home, according to Bloomberg.
In proposing their bill, Warren and Ocasio-Cortez cited a report that Rite Aid is rebranding its pharmacy benefit management company “to scoop up smaller pharmacies”, they said.
“Private equity firms are planning to jump at the cheap opportunities” and “big tech has moved to snatch up struggling start-ups”, the legislators said in a summary of their bill.
“If we don’t stop predatory M&As [mergers and acquisitions] now, the actions of big corporations will have decades-long economic consequences,” Ocasio-Cortez said in a statement when the bill was introduced on April 28.