For starters, let me just say that I dreamed about graduating from law school and passing the bar. Much of this dreaming occurred when I slept through my Mergers and Acquisitions class. Point being, this area of the law drew almost zero of my interest – until recently. Similar to issues with non-poaching of employee agreements between DoD contractors, there seems to be a renewed interest by this administration to proactively ensure that competition amongst all sectors of industry is real and transparent and is void of anti-trust violations.
Microscope on Mergers and Acquisitions
In the Promoting Competition in the American Economy Executive Order released this past July, there was specific language that government agencies, including the Department of Justice and the Federal Trade Commission, shall work together to ensure to enforce existing laws which include oversight of mergers, acquisitions and joint ventures. Section 7 of the Clayton Antitrust Act prohibits mergers and acquisitions when the effect “may be substantially to lessen competition, or to tend to create a monopoly.” According to the FTC website, “the key question the agency asks is whether the proposed merger is likely to create or enhance market power or facilitate its exercise” Of the most concern to the FTC and the DOJ, seem to be horizontal mergers, where two industry heavyweights combine and threaten to monopolize that sector, limiting competition and affecting the consumer, although vertical mergers ( a merger between companies involved at different stages in the supply chain for a common good or service). To extend this line of thought to the future, horizontal mergers can theoretically lead to increased lobbying and political power, tilting the playing field even more. The telecom industry survived a legal challenge when the T-Mobile/Sprint merger was approved by federal court in 2020, which found the transaction was, for lack of a better phrase, unable to rise to the standards needed under the law to block it. The judge who decided it took 173 pages to say Sprint was declining as a company and the merger made sense for that reason.
FTC Weighs in on DoD Acquisition
So how is this all relevant to the DoD and the possibilities it could affect the employee or potential employee? Well, just last week, the FTC filed suit yesterday to block an aerospace acquisition. The FTC in their complaint, stated that because of the exclusive nature of the industry that produces inputs for specific weapon systems, the merger would give the acquiring company “the ability and incentive to deny, limit, or otherwise disadvantage competitors’ access to critical propulsion inputs for various weapons systems”. For more information on that specific complaint see the FTC Press Release. The release also summarizes the potential impact on the defense industry by noting:
“The U.S. government in turn would be harmed because the cost of missile systems, missile defense kill vehicles, and hypersonic cruise missiles would likely increase, innovation would be lessened, and quality would be reduced, hindering national security and defense interests.”
Mergers and Acquisitions Have a Ripple Effect
Theoretically, lack of employment possibilities by specialists working in the industry could lead to lack of bargaining power due to fewer choices. Moreover, in a horizontal merger, redundancies could lead to job loss for some, not to mention stress and uncertainty. However, sometimes mergers have positive implications for employees, especially in the case in which their current company is struggling, as it injects an asset and wealth infusion into their industry. For employers undergoing a merger, it is critical to keep employees informed as much as possible to include active legal actions that have been taken to block it (they are public record and the employee will find out sooner or later from another source). It may help retain critical talent who appreciate your transparency and commitment to them.
