John M. Newman is a professor of antitrust law at the University of Memphis.John M. Newman
MEMPHIS, Tennessee — To the extent that President Donald Trump has stuck to one message consistently throughout his unorthodox campaign and nascent presidency, it is this: “We will bring back our jobs.”
While the Trump administration appears focused almost entirely on outsourcing as the root cause of U.S. job losses, the (mostly) unnoticed elephant in the room is corporate merger and acquisition activity.
Last year saw a record number of deals announced, the largest of which was the proposed $66 billion takeover of U.S.-based Monsanto Co. by German giant Bayer AG. The proposed acquisition, which is still pending antitrust review, has revealed a sharp divide over how regulators should analyze mega mergers. This acquisition — and others like it — will test President Trump’s “jobs-first” resolve, as well as his much-touted business acumen.
The Orthodox View: Efficiency Only
Merger and acquisition activity between rivals of this size often faces tall antitrust hurdles. Bayer and Monsanto currently account for nearly 70 percent of U.S. cotton seed sales, higher than the legal standard for monopoly power.
Read more (2009): Monsanto uses patent law to control most of U.S. corn, soy seed market
The acquisition would also stamp out the first signs in years of life in the soybean market, where Monsanto has long owned over 90 percent of sales. For the 2016 growing season, Bayer rolled out a direct competitor, a new line of soybeans that (according to Bayer itself) brought much-needed innovation and real choice to farmers.
This is exactly the sort of beneficial competition the antitrust laws are supposed to protect. An acquisition like Bayer’s — which would eliminate a head-to-head competitor from the marketplace — poses a clear threat to market vitality.
It would seem incumbent on Bayer and Monsanto, then, to justify this deal as somehow benefiting society. And that is exactly what the two tried to do during an unusual meeting with then President-elect Trump in early January, when Bayer reportedly promised to “add 3,000 new U.S. high-tech jobs” if allowed to absorb Monsanto.
But most antitrust enforcers focus solely on economic efficiency, so, at least from an antitrust perspective, those “new jobs” could pose a problem. A company needing more employees after an acquisition suggests that the deal is inefficient. “More jobs” is not a valid defense to an orthodox antitrust enforcer — job creation would be a reason to block the deal, not bless it.
Reflecting the broad consensus on this point, former enforcers who served under both Republican and Democratic presidents have opposed a “jobs matter” approach to antitrust.
The Populist View: Jobs Matter – and Mergers & Acquisitions Kill Jobs
The Breitbart camp, which, in Steve Bannon, now has a powerful voice in the administration, is more willing to criticize deals based on employment effects. In September, it condemned the proposed Bayer-Monsanto acquisition, speculating that over 6,000 employees could be “dumped” after the takeover.
At least when they are not trying to sell a proposed deal to the public, companies do tend to cite “synergies” — which often take the form of layoffs — as a prime reason for merging. In a press release issued before last fall’s election, Bayer touted $1.5 billion in “cost synergies” that the deal would supposedly yield. The release did not mention job creation.
Surprisingly Equivocal Agency Guidance
The Bayer-Monsanto deal reveals a sharp divide over merger and acquisition activity, and jobs. But, although former enforcers have been quick to criticize employment-based reviews as overly political, even “populist,” the merger guidelines at the Federal Trade Commission and Department of Justice take a surprisingly equivocal stance. Usually clear, the guidelines state that the agencies may refuse to credit “management cost” efficiencies “for other reasons.” (What those reasons might be is left to the reader’s imagination.)
The Uncertain Path Forward
President Trump — and whomever he appoints to oversee the FTC and the DOJ Antitrust Division — face an uncertain path. Their choices will reveal much about the administration’s true priorities.
Left to their own devices, antitrust enforcers may sue to block the Bayer-Monsanto deal under a traditional competitive-harm theory. But that would likely rob the Trump administration of its “thousands of new jobs” headline. Or enforcers may clear the deal because it appears likely to kill jobs — and is therefore efficient — which could prompt a negative reaction from populists.
Chasing job-creation numbers, President Trump may try to intervene on behalf of the deal. But that would contradict Sen. Jeff Sessions, the Attorney General nominee, who already promised no “political influence” in antitrust enforcement.
If President Trump decided to override Sessions, those new jobs could still fail to materialize — $1.5 billion in “synergies” would have to come from somewhere. Being duped by Bayer (a foreign company, no less) would seem to undercut the president’s claimed prowess as a dealmaker.
At the very least, if merger reviewers decide to take the unusual step of privileging jobs over efficiency, they would do well to get any promises in writing, in the form of an enforceable court decree. The worst of all outcomes would be clearing an otherwise harmful deal based on empty promises.
John M. Newman, a former U.S. Department of Justice trial attorney, is a professor of antitrust law at the University of Memphis’ Cecil C. Humpreys School of Law.
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