US companies have abandoned $ 370bn of large deals since President Barack Obama came into power in 2009, after regulators in his administration blocked an unprecedented number of transactions to protect competition, jobs and the US tax base.
Corporate America responded with dismay on Tuesday after the US Treasury proposed new rules that torpedoed Pfizer’s takeover of Dublin-based Allergan, worth $ 160bn, or $ 190bn including debt, in an attempt to stop the drugmaker moving its headquarters to Ireland so it could avoid billions of dollars in US taxes.
It was the latest in a series of interventions by branches of the Obama administration, which has thwarted more big-ticket mergers and acquisitions than were blocked during the Clinton and Bush eras put together, according to an FT analysis of abandoned deals worth more than $ 10bn.
In 2014, AbbVie pulled the plug on its $ 55bn takeover of Ireland-based Shire — another “inversion” that would have enabled it to slash its US tax bill — following a similar putative rule change by the US Treasury.
The administration has also blocked several big telecoms deals in an attempt to protect competition. Comcast withdrew its $ 71bn takeover of Time Warner Cable last year, after the Department of Justice signalled it would try to stop the deal, which drew widespread opposition from campaigners who said it would create a broadband monopoly and hurt “net neutrality”.
In contrast, the George W Bush administration blocked just one large deal — the $ 27bn takeover of Hughes Electronic by EchoStar, the satellite TV group.
Two big M&A transactions were torpedoed under Bill Clinton: the $ 12bn takeover of military supplier Northrop Grumman by its larger rival Lockheed Martin, and MCI WorldCom’s $ 125bn bid for Sprint, the mobile phone network.
The interventionist posture has provoked anger on Wall Street. One large life sciences investor with holdings in Pfizer, Allergan and AbbVie said the administration was building an “artificial prison for pharmaceutical companies, rather than dealing with the underlying issue” of relatively high taxes for US companies.
An investment banker said the deal highlighted how the White House had succumbed to a “leftist rhetoric” that had its roots in the aftermath of the financial crisis and which has since been embodied by Bernie Sanders’ campaign for the presidency.
However, administration officials argue that the Obama era has coincided not only with a series of tax inversions, but also with an unprecedented level of dealmaking. They believe some sectors are in danger of becoming uncompetitive after decades of consolidation.
In a speech on Wednesday night, Loretta Lynch, US attorney-general, said the DoJ would “not allow management to increase investor value at the expense of the individual consumer”.
She added: “Consolidation among major competitors — especially in already concentrated industries — raises serious concerns about higher prices, lower output, diminished quality and flagging innovation.”
Debbie Feinstein, director of the Federal Trade Commission’s competition bureau, told the Financial Times: “There’s no question that we’re going to be aggressive against conduct or mergers that are going to harm competition or consumers. That’s our job and we take it very seriously and we’re going to do it very carefully. We’re not afraid to litigate.”
Additional reporting by James Fontanella-Khan
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