The U.S. Federal Trade Commission (FTC) announced that it’s taking a closer look at hundreds of acquisitions made by Google, Apple, Amazon, Facebook and Microsoft over the past decade. It wants to see if any of those, some of them very small, were “potentially anticompetitive acquisitions of nascent or potential competitors.”
Were such a review conducted today, Facebook’s acquisition of Instagram or WhatsApp, for example, might have been disallowed under the theory that were “nascent competitors.”
Under the radar acquisitions. Generally, when M&A activity meets certain monetary thresholds or other requirements, the companies involved are required to file what are known informally as pre-merger notification reports with the FTC. They tell regulators of the intent to acquire or merge, which triggers an antitrust review.
However, many smaller or less significant acquisitions fall outside of the scope these reporting rules under the Hart-Scott-Rodino (HSR) Act. They are thus exempted from the notification reporting requirement. All of the acquisitions now being reviewed, did not meet the HSR reporting thresholds.
Could lead to unwinding. Part of the agency’s objective is to learn whether in the future it needs to change the HSR reporting rules to capture a wider array of transactions — under the theory that some of the major companies are buying future competitors before they can grow to that level.
According to a conference call held by the FTC, beyond helping educate the agency, the investigation could also lead to “enforcement actions.” In the extreme, what that means is the potential unwinding or divestiture of some of these acquisitions.
Huge volume of internal documents. Under Section 6(b) of the FTC Act, the agency is asking for the big tech firms to effectively provide all the information that would have been required under the HSR notification rules. The FTC is seeking “information and documents on their corporate acquisition strategies, voting and board appointment agreements, agreements to hire key personnel from other companies, and post-employment covenants not to compete. Last, the orders ask for information related to post-acquisition product development and pricing, including whether and how acquired assets were integrated and how acquired data has been treated.”
The FTC’s orders also seek information on the big tech firms’ “corporate acquisition strategies, voting and board appointment agreements, agreements to hire key personnel from other companies, and post-employment covenants not to compete.”
Mandate to move fast. The orders grew out of the FTC’s earlier hearings on competition in the technology sector. The inquiry is very expansive and fast-moving, according to FTC Chairman Joe Simons, who spoke on the conference call.
Simons pointed out that the FTC is defining “acquisitions” very broadly to include licensing, minority investments and data acquisitions, beyond whole company acquisitions. The scope of the inquiry may expand later. But Simons said the agency has a “mandate to move quickly.”
This inquiry operates in parallel but is not being coordinated with the Justice Department’s or state attorneys general investigation antitrust investigation of many of the same companies.
Why we care. In addition to the above, it’s also possible that the FTC would order specific companies to report all acquisitions (broadly defined) to the agency in advance for antitrust scrutiny, regardless of size and value. None of this may result in the unwinding of any acquisitions but it’s certain that the inquiry won’t end without some sort of change either in reporting rules for all tech companies or for individual companies.
All of this could make it much more difficult for these tech giants to buy smaller firms (and potential future rivals) in the future.