FTC’s suit against Kroger-Albertsons merger will have a ‘chilling effect’ on M&A activity

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Capital One’s (COF) $35 billion deal for Discover Financial (DFS) and Walmart’s (WMT) $2.3 billion acquisition of smart TV maker Vizio (VZIO) sent a signal that corporate America is willing to spend big on M&A again.

But that optimism may be short-lived.

The Federal Trade Commission’s (FTC) recent bid to block Kroger’s (KR) $25 billion acquisition of Albertsons (ACI) may deter dealmaking activity, posing a potential risk for investors.

“[The Biden administration] has sent a clear message that mergers will be looked at more carefully and with a broader approach,” former FTC commissioner Mozelle Thompson told Yahoo Finance Live. “The Biden administration has sent a signal that may have a chilling effect to mergers, and the market is responding to that.”

Since stepping into the White House in January 2021, the Biden administration has made antitrust a priority. The FTC brought 24 merger enforcement challenges in fiscal year 2022, according to the annual Hart-Scott-Rodino Report. It’s the second-highest figure in the past decade.

The FTC’s suit to challenge the Kroger-Albertsons tie-up is the latest in a long list of moves taken by the Biden administration to block consolidation across industries, from Big Tech to airlines.

Recent wins include a federal judge siding with the Department of Justice (DOJ) and blocking JetBlue’s (JBLU) $3.8 billion acquisition of Spirit Airlines (SAVE), as well as biotech firm Illumina’s (ILMN) decision to sell Grail.

FILE - A JetBlue Airways Airbus A320, left, passes a Spirit Airlines Airbus A320 as it taxis on the runway, July 7, 2022, at the Fort Lauderdale-Hollywood International Airport in Fort Lauderdale, Fla. What's next for Spirit Airlines, now that it won't be merging with JetBlue? Some Wall Street analysts are starting to raise the possibility of bankruptcy. Spirit Airlines stock was falling again on Wednesday, Jan 17, 2024, a day after a federal judge blocked JetBlue's proposed $3.8 billion purchase of Spirit. (AP Photo/Wilfredo Lee, File)FILE - A JetBlue Airways Airbus A320, left, passes a Spirit Airlines Airbus A320 as it taxis on the runway, July 7, 2022, at the Fort Lauderdale-Hollywood International Airport in Fort Lauderdale, Fla. What's next for Spirit Airlines, now that it won't be merging with JetBlue? Some Wall Street analysts are starting to raise the possibility of bankruptcy. Spirit Airlines stock was falling again on Wednesday, Jan 17, 2024, a day after a federal judge blocked JetBlue's proposed $3.8 billion purchase of Spirit. (AP Photo/Wilfredo Lee, File)

A JetBlue Airways Airbus A320, left, passes a Spirit Airlines Airbus A320 as it taxis on the runway, July 7, 2022, at the Fort Lauderdale-Hollywood International Airport in Fort Lauderdale, Fla. (AP Photo/Wilfredo Lee, File) (ASSOCIATED PRESS)

Experts warn the offensive on corporate America consolidation will likely continue, regardless of who wins the 2024 presidential election.

“The populist movement is shifting how a lot of Republicans look at antitrust,” Stifel’s chief Washington policy analyst Brian Gardner told Yahoo Finance. “For those who think there’s going to be some big M&A boom if Trump wins are going to be sorely disappointed.”

Gardner added, “The M&A antitrust moves that the Biden administration has undertaken originated at the end of the Trump administration. The Biden administration took the ball and ran with it. … I see a subtle shift [if Trump is elected], but I don’t see a big shift.”

Senator JD Vance (R-Ohio) recently commended FTC chair Lina Khan’s antitrust crackdown, telling attendees at Bloomberg’s “RemedyFest” technology forum that she’s “doing a pretty good job.”

Bipartisan pushback on Kroger’s deal to buy Albertsons was evident from the start. Senators Amy Klobuchar (D-Minn.) and Mike Lee (R-Utah), the chair and top Republican on the Senate Judiciary Committee’s antitrust panel, both expressed concern that the transaction would reduce competition and consumer choice during a bipartisan hearing shortly after the deal was announced.

And the bipartisan opposition extended to the state level as well. A group of nine state attorneys general joined the FTC in the lawsuit, including Nevada attorney general Aaron Ford, who told Yahoo Finance a merger would eliminate pricing competition, and erode product quality.

It’s also important to point out that the FTC’s challenge of Kroger’s deal to buy Albertsons is among the first to come under new merger guidelines published by the FTC and DOJ, which includes consideration of how mergers affect labor market competition.

The expanded guidelines could reshape the business landscape for years to come, as a wider range of mergers will likely be questioned as a result.

“The antitrust climate is going to be tough,” Thompson added. “Companies looking to merge are going to have to not only look at the timing of those mergers but be able to showcase some real benefits. … Deals may still get through, but it will be more expensive and take more time.”

Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email [email protected].

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