Is Corporate America Betting on Trump?

Get ready for an explosion of merger announcements as Wall Street assumes Trump will win, and let a consolidation frenzy ensue. It's a big bet. But is it a smart bet?

Welcome to BIG, a newsletter on the politics of monopoly power. If you’d like to sign up to receive issues over email, you can do so here.

Today’s issue is about how corporate America is betting on the 2024 election, and why attempts at consolidation are likely to pick up dramatically in the months ahead.

In March of 2000, Presidential candidate George W. Bush accidentally told the truth about corporate power. He was in Washington state, the headquarters of software monopolist Microsoft, then threatened with a break-up in an antitrust suit by the government. Bush commented he was "worried" about the consequences "if this company were to be broken apart, this engine of change, engine of growth." A Republican Senator, Slade Gordon, then added "I don't think a Bush administration would have brought the case to begin with."

These comments were problematic because, while his party had taken roughly four hundred thousand in donations from Microsoft, he also had many other Silicon Valley donors, including large firms like Sun Microsystems and Oracle, who wanted Microsoft broken up. The smartest position was neutrality, so his campaign tried to downplay the comments to avoid criticism from John McCain over corruption allegations. (The conflict wasn’t particularly partisan - Al Gore supported the break-up, his opponent Bill Bradley did not. And Bill Clinton was quite lax on antitrust, the Microsoft case was an anomaly.)

Still, when Bush took office, what he did wasn’t the least bit surprising.

While the Bush administration didn’t quite drop the case, it came pretty close. As conservative lobbyist Jeffrey A. Eisenach put it, “I don’t think Microsoft is likely to find a friendlier antitrust chief than” the one appointed by Bush, a man named Charles James. It wasn’t just this case. The Bush Department of Justice didn’t bring a single monopolization case in the eight years they were in office, laying some of the groundwork for today’s monopolization crisis, and the administration allowed key mergers, like Google’s purchases of DoubleClick and YouTube.

In other words, elections matter when it comes to corporate power. Ronald Reagan orchestrated a wholesale restructuring of antitrust, but as we can see with Microsoft, there are specific cases that depend on the outcome of elections as well. It’s not always a coherent ideological shift, instead it can be up to the personal pique of leaders. For instance, the CEOs of AT&T and Time Warner announced a merger in 2016, and probably didn’t expect it to become a campaign issue. But Donald Trump attacked the combination as too much power in too few hands, followed by similar commentary from Bernie Sanders and Hillary Clinton. President Trump then followed up with an antitrust case to block the merger.

Biden Time Ends in April

On the campaign trail, Joe Biden didn’t make a big deal of corporate power one way or the other. Popularly known as the Senator from MBNA for his reliance on Delaware’s credit card industry, Biden didn’t elicit great expectations from most financial reformer types. I talked to a number of people who knew Biden before he took office, and got the sense he’d be more populist than expected, but would also work a lot with the old guard.

That’s been about right.

On corporate power in general, President Biden has been a mixed bag. In a lot of areas, like whatever the Treasury Department touches, it’s highly Wall Street friendly. (See the Federal Reserve and Silicon Valley Bank, for instance.) On antitrust, Biden did talk about it a bit on the campaign trail, but didn’t reference specific cases. A few well-connected contacts in the big tech world told me early on they were quite confident it would be a reversion to Obama era antitrust, that Kamala Harris would take care of them. Were they ever wrong!

Biden appointed aggressive enforcers to both the Department of Justice Antitrust Division and to the Federal Trade Commission, and issued a meaningful executive order on competition. The net effect is a massive deterrent against mergers, especially large ones, with deal volume down 16% this year alone. There’s also a lot of litigation where judges have to start dealing with antitrust. From the book industry to health insurance to Google and Amazon to prescription routing networks to virtual reality to video games to semiconductors to sugar to health-specific adtech to pharmaceutical patents and private equity health care providers to airlines to pipelines to meat to pesticides, the antitrust world has been busy.

And that’s unlikely to slow.

The JetBlue-Spirit trial is ending, which could go to appeal. The IQVIA merger trial is ongoing, as is the first Google antitrust search trial. Another Google trial starts early next year, as does an FTC trial against Facebook. My guess is there will be more challenges, potentially against the supermarket combination of Kroger-Albertsons, the design software merger of Adobe and Figma, and/or pharma giant Pfizer’s purchase of Seagan.

But what’s interesting is that over the past few months, the deterrent effect seems to be waning, as there have been some major announcements of big mergers. Exxon is paying $60 billion for shale producer Pioneer, Alaska Airlines and Hawaiian Airlines are tying up for $1.9 billion, Chevron is buying Hess for $53 billion, Occidental may try to acquire CrownRock for $10 billion, AbbVie just bid $8.7 billion for drugmaker Cerevel Therapeutics, and health care giants Cigna and Humana are in talks to create a powerhouse with $300 billion of annual revenue. And I don’t think this is the end, I suspect early next year we’ll see some significant mergers between Hollywood studios, among others.

Changing the Color of One’s Robes

There are a few possible reasons for this shift. The first is the environment for mergers is getting a bit better. Borrowing costs are coming down, though only slightly. And then there are judges. Wall Street and big law have created a narrative that the antitrust agencies are losers, don’t understand the law, and a pickup in mergers is always around the corner because judges keep ruling against them. And judges do have enormous power, have ruled against the agencies on a few occasions, and are generally deferential to corporate power. But the agency losses are overstated. There’s actually a strong element of randomness to judges, and thus to antitrust law. The FTC happened to get a favorable district judge - John Chun - for their Amazon antitrust case, and an absolutely awful district judge - Jacqueline Corley - for the Microsoft-Activision case.

Also, the cases hitting the courts seem to be fostering an atmosphere of learning. Today, for instance, the Ninth Circuit heard the appeal of the Microsoft-Activision merger case.

A panel of three judges listens to an FTC official argue for overturning a judge’s order allowing the Microsoft-Activision merger to proceed.

Judge Corley had ruled against the FTC on the grounds that Microsoft’s acquisition of Activision would allow consumers to get cheaper and quicker access to video games, which meant that it couldn’t be creating market power.

The panel was composed of three judges, two of whom were picked by Trump, Daniel P. Collins and Danielle J. Forrest, and one of whom was a Biden appointee, Jennifer Sung. Typically, you would think Trump judges aren’t great on market power questions, but in this hearing, all three were skeptical of Corley’s rationale, noting that consumers getting benefits doesn’t invalidate antitrust laws. It was a pretty sophisticated set of arguments.

Jennifer Sung of the appeals court in San Francisco repeatedly pushed Microsoft’s lawyer on whether the company’s plan to release Activision titles on the cloud, in addition to video-game consoles, adequately addressed antitrust concerns.

“That’s not actually procompetitive,” Sung said at the hearing. “That might benefit some consumers, but you can’t equate a benefit to some consumers to a procompetitive effect.”

… “Microsoft’s gonna get there first, and it’s gonna get there big because it’s got, you know, the best infrastructure,” said Forrest. Microsoft’s “going to make decisions to make sure that it’s the biggest dog in that market forever.”

This hearing is honestly the first time I’ve felt that judges are actually part of the discourse that the rest of us have been having about monopoly. I don’t know that they’ll overturn Corley’s decision, but they weren’t enthralled with the stupid ideological notion that The Market Just Magically Fixes Stuff.

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Similarly, in the JetBlue-Spirit merger trial earlier this week, the judge, a very old Reagan era appointee, William Young, said he knows the deal is illegal, but is terrified of blocking it, because he has come to see himself as a central planner responsible for the airline industry instead of a judge upholding a fairly clear law. He practically begged the Antitrust Division to accept some sort of remedy, to help him find a way to let the merger go through. It’s not clear how he’ll rule, as he is torn between what he knows the law says and what his pro-corporate instincts are. It’s a very weird dynamic, Spirit stock cratered as he talked about his thinking, and then recovered a bit as traders realized that they have no idea what he will do. Still, at least judges are starting to grapple with market realities.

All that said, I don’t think the announcements of a series of big mergers is happening because of judges. It’s expensive to litigate, even if a judge eventually rules for you, which is a crapshoot. The CEOs of Penguin and Illumina lost their jobs over a failed merger, so deterrence is real. No, what’s happening is that deal-makers think that Trump could win.

Early Birds

Investigating and bringing a merger challenge can take a very long time, from nine to fifteen months. Typically, agency staff will investigate, do subpoenas, depositions, go through document review, and present a thumbs up/thumbs down decision point for political leaders. And that means that we’re entering a period where a corporation that engages in a merger may actually find itself investigated under Biden, but with the final call on whether to challenge it under Trump.

I don’t mean to say that Trump will win, only that Exxon, Humana, Chevron, et al. are betting that they *might* find a far more favorable climate when their deal goes to trial. As with George W. Bush and Microsoft, they are hoping that the next President reverts to form, and makes the call to let all these acquisitions go through. If Trump loses, or is aggressive on antitrust, they can then choose to litigate, or just drop the merger.

And that brings me to the final question, which is, will Trump actually allow mergers to go through as corporate America expects? I’ll be exploring Trump’s track record on corporate power more in future BIG posts, but the answer isn’t as clear as you might think. In his first term, Trump allowed a lot of mergers through that seemed pretty bad, like Disney-Fox and Sprint-T-Mobile. He’s also close with private equity barons, who are key engines of merger activity, and he has advisors like Larry Kudlow who are hostile to antitrust. Trump himself is a deal guy. That said, when he was President, Trump did actually try and block AT&T-Time Warner, as well as bring groundbreaking cases against Google and Facebook. He’s not particularly friendly to big tech, and enjoys scrapping with corporate CEOs.

Moreover, the debate over antitrust on the right more broadly is changing. I’ve noted that the Federalist Society is seeing a rethink of corporate power, as legal movement conservatives distrust large corporations more and more. In the last month, this sentiment has moved a bit more into the electoral policy realm. Conservatives at the iconic Heritage Foundation put out something called Project 2025, which is as close as you’ll find to a blueprint for a GOP administration, a compendium of conservative advocacy groups and their views.

And while there’s a lot of adherence to old Reagan-era norms, the document contains an unexpected populist strain on antitrust. “The next President,” it says, “should promote pro-growth economic policies that spur new jobs and investment, higher wages, and productivity. Yes, that agenda should include overdue tax and regulatory reform, but it should go further and include antitrust enforcement against corporate monopolies.”

That’s shockingly different. There’s also this analysis of corporate America, which you could easily find in a liberal think tank report.

More broadly, there is less and less debate around the growth of monopoly rents throughout the U.S. economy. The current data strongly suggest that U.S. corporations are systematically earning far higher profits than they were 25 or 30 years ago. Combined with other evidence that large corporations are accounting for an increasing share of revenue and employment, it certainly appears that many large U.S. corporations are earning substantial incumbency rents, and have been doing so for at least 15 years, apart from during the depths of the Great Recession that began in 2008.

I don’t want to overstate the fervor on the right on antitrust, because it’s clear that there are core parts of the GOP establishment who are deeply hostile to the anti-monopoly project. But it’s obvious that Trump broke the libertarian consensus among Republicans, and that now there is a fierce factional dispute on that side of the aisle. What does this mean for Alaska Airlines buying Hawaiian Airlines? Or Exxon buying Pioneer? If I had to guess, I’d say in the short-term it’s a reasonable bet from corporate America. Because Trump is likely to allow consolidation, at least at first, if for no other reason than stopping deals is not a high priority. But populism in antitrust is earning converts quickly, and deal-makers might soon remember the years of Lina Khan and Jonathan Kanter as the good old days.

Thanks for reading!

And please send me tips on weird monopolies, stories I’ve missed, or comments by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues, a newsletter on how to restore fair commerce, innovation, and democracy. And consider becoming a paying subscriber to support this work, or if you are a paying subscriber, giving a gift subscription to a friend, colleague, or family member.

cheers,

Matt Stoller