In August 2014, Sprint abandoned its bid to acquire T-Mobile for $32 billion after fears that it would not receive regulatory approval. The move is a reflection of the fact that the Federal Trade Commission and the U.S. Department of Justice are becoming more skeptical of companies claiming that a merger or acquisition would increase efficiency. Experts say that the key to getting these transactions approved in the future is to prove that this increased efficiency will actually take place.
Proponents argue that the combined companies can improve service while decreasing labor costs. Larger firms may also be able to innovate and scale their companies more effectively when combined as opposed to operating as separate companies. However, the burden is on those companies to also prove that a larger company would not stifle competition or limit consumer choice.
A 2004 study by McKinsey & Co. looked at 160 mergers and found that the efficiency benefits of a merger were often overstated. It said that managers are only human and can only do so much to scale and realize the cost savings available. This question may loom large when regulators determine whether Time Warner and Comcast can complete their proposed transaction. AT&T has reportedly won preliminary approval of its bid to acquire DirecTV. That transaction has been approved based on both companies meeting reportedly undisclosed conditions.
While a merger between two companies may create a more efficient company that offers more to customers, it could also violate antitrust rules. Companies that are planning acquisitions of other companies in the future may wish to hire a business law attorney to take a look at the proposed transaction and point out the types of regulatory approvals and oversight that will be necessary.
Source: The Fiscal Times, "Why Federal Watchdogs Are Barking More about Mergers ", Kirk Victor, August 28, 2014