Antitrust Issues: Industries on Watch Over M&A Activity

shutterstock_112917415Across several US industries, large companies are engaging in merger and acquisition (M&A) activity. The industries in which M&A activity is occurring are defined by a large market share concentration among the top four companies and medium to heavy levels of regulation. M&A activity among large companies typically prompts a response from the US Department of Justice (DoJ), which is responsible for promoting competition by taking measures to prevent a merger or acquisition that it believes will be detrimental to consumers. If M&A activity occurs between two large companies, it elicits potential intervention by law firms or law professionals due to the harm consumers may experience through increased prices for these goods or services.

The industries listed below pose concerns to consumers because they provide goods and services that millions of Americans rely on. IBISWorld queried its database of more than 1,000 US industry reports to identify 10 that have experienced major M&A activity throughout this past year, or potentially will in the future, presenting possible antitrust threats. In fact, several of these industries have already prompted responses from the DoJ Antitrust Division in 2013.

M&A-active Industries

Domestic Airlines

In the Domestic Airlines industry, American Airlines and US Airways merged. This move was a major concern for the DoJ in the initial stages of the merger due to the possibility that the newly merged airline would hike up prices for consumers as well as reduce service to smaller cities. An initial lawsuit was filed by the DoJ; nevertheless, the merger is ultimately expected to be approved in December, as the two airlines agreed to give up dozens of gates at major transportation hubs. Despite an expected merger between the two companies, there will still be concerns going forward as to whether American Airlines will charge higher prices to their customers. These concerns can potentially present future threats to other players who follow suit.

Wireless Telecommunications

The Wireless Telecommunications industry, in which the top four companies generate 94.7% of market share, is also experiencing a potential merger. Sprint and T-Mobile, the third and fourth largest companies in the industry, respectively, have engaged in talks of merging. However, the DoJ has pushed against this potential merger due to its belief that further consolidation would allow the remaining companies to raise prices and reduce the services they offer to customers. In 2011, AT&T aimed to purchase T-Mobile and was prevented from doing so by the DoJ due to worries over having only two dominant companies in the industry, indicating that current talks of a merger will be shot down.

Chocolate Production

In the Chocolate Production industry, which consists of chocolate and cocoa producers, Cargill Inc. and Archer Daniels Midland (ADM) Company are in the final stages of a deal in which Cargill would buy ADM’s cocoa business. This move has become a cause for concern because Cargill will have the ability to charge higher prices for its cocoa products. While the merger would not affect larger chocolate producers such as Hershey and Mars, it would impact small and medium-size chocolate producers. Because the small and medium-size producers would experience more difficulty competing in the Chocolate Production industry, consumers could experience price increases for private label brands. Overall, this acquisition is of concern to the DoJ, and there is the potential for more M&A activity in this industry to come.

Breweries

While it has not occurred yet, a possible major acquisition is on the horizon in the Breweries industry. Industry leader Anheuser-Busch (AB) InBev expressed interest in purchasing the second-largest company in the industry, SABMiller. According to IBISWorld’s most recent Breweries industry report, as separate entities, AB InBev and SABMiller hold a combined market share of 76.3%. Although US regulators would not likely allow AB InBev to directly add SABMiller’s market share, the acquisition still concerns the DoJ because AB InBev already controls about half of the US beer market. What this means for law firms and law professionals is that more lawsuits may occur in the coming years by players that are worried about the power that the more powerful AB InBev will exert over the market.

Overall, large companies in the aforementioned 10 industries are either working toward a merger or acquisition or potentially will in the years to come. Those companies that seek to merge with or acquire other companies have attracted the DoJ’s attention, and in many instances, action has been taken to try and prevent these moves from happening. The M&A activity, particularly among large companies, is of importance to consumers because the end result can be increasing prices for goods and services they purchase on a daily basis, prompting law firms and law professionals to respond. Businesses can also be adversely affected by M&A activity due to increasingly difficult competition with a bigger company that can attract more consumers. Because the DoJ Antitrust Division’s goal is to protect American consumers by fostering competition within an industry, it has and will continue to provide resistance as it sees fit. While other industries on the list have not experienced major M&A activity in 2013, they all present potential for future M&A activity among the top four companies, which may generate antitrust concerns, and therefore, generate demand for legal services.

For a printable PDF of Antitrust Issues: Industries on Watch Over M&A Activity, click here.

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