When Whirlpool bought Maytag a decade ago to create by far the largest appliance maker in the world, antitrust regulators let the deal sail by. Things have certainly changed since then.
On Wednesday, the U.S. government sued Electrolux to halt its purchase of General Electric’s appliance division. The U.S. government says the merger would create a company that would dominate the sale of appliances to home builders and property managers. It would also be a major competitor in the consumer market, as well, though not as big as Whirlpool (WHR).
It’s hard to know if we have hit peak antitrust, but it feels like it. In the past two months, the government put up a road block for a number of large deals, including Comcast’s proposed merger with Time Warner Cable and U.S. Foods’ purchase of rival Sysco. And if at least one of the many proposed healthcare deals get done, the government has said that it will take a hard look at that. The Staples deal to buy Office Depot could be the next one to hit the chopping block, but given that neither of those companies have done particularly well lately, it’s likely that that may be the mega-merger to slip through.
The government’s antitrust vigor goes in waves, political ones. And it’s hard to know whether the recent rise in antitrust fights is a result of a renewed interest in regulation, or simply an indication that American industry has reached its consolidation tipping point, and that any new merger, particularly a mega one, would put us over the edge. For instance, if Electrolux were allowed to buy the appliance division of GE (GE), the combined company, along with Whirlpool, would control roughly 70% of the appliance market. Although one could argue that giving Whirlpool, which has 40% of the market alone, a stronger rival could actually increase competition.
The American economy does seem more consolidated than it used to be. But at the same time, new startups like Uber and AirBnb are turning over industries long dominated by incumbents. Even the big banks, a poster child for industry consolidation that’s gone too far, seem concerned about losing ground to startups.
Early on, the Obama Administration seemed friendlier to mergers than expected. That led executives like Brian Roberts at Comcast to think that big mergers, even in an industry like cable, would be fine. In retrospect, that was clearly a miscalculation.
But Roberts is not alone. The government’s increased focus on antitrust has done nothing to slow mergers. M&A activity is on fire this year, and it’s on track to handily surpass last year’s torrid pace. And the deals are getting larger. What’s more, the fact that a merger could get blocked is clearly not making a dent on what acquirers are willing to pay. So far this year, U.S. companies are paying a 27% premium to their target’s trading price one week before a deal is announced, according to Dealogic. That’s slightly less than the 20-year average of 30%, but it’s up from 20% two years ago.
It might be time for deal makers to recalibrate.
