Hello, and welcome to the Votes in Verdicts podcast hosted by Bloomberg Intelligence. We are the investment research platform of Bloomberg LP. In this podcast series, we talk about the intersection of business policy and law. My name is Jennifer Ree and I'm a senior analyst with Bloomberg Intelligence and
I cover US anti trust litigation and policy. So this is the fourth of the Votes in Verdicts podcast series focused on anti trust issues, and for this episode, I'm really excited to be joined by Ira Gorski, Managing director of Edelman Smithfield, which is a financial communications boutique within the largest communications firm in the world. In this role, Ira works on special situations and investor relations such as
m and A, act activism, defense, and investor narratives. Prior to his current role at Edelman, Ira worked as a risk GARB trader. Ira, thanks so much for joining me at this podcast.
Thanks for having me. I'm really excited to be here.
Yeah, it's going to be fun.
It'll be fun for all the anti trust nerds out there, Yes, like me and me too. All Right, So Ira and I are going to be talking about new merger guidelines issued by the Federal Trade Commission and the Department of Justice. So let me just start to set the stage for the discussion with laying out exactly what they are and what their function is, because not all of the listeners
of this podcast are anti trust nerds like us. So these guidelines essentially lay out the factors and the framework utilized by the agencies in reviewing transactions and determining whether a transaction has the potential to result in harm to a marketer markets and therefore it would violate the anti trust laws. So when we talk about harm to markets, it's primarily thought about as increased prices, reduced output, reduced innovation,
reduced quality. And what these guidelines do is outline the step by step approach the agencies take to make the determination if a deal could impact markets in those ways, and they also outlines the factors they will or won't consider to assess whether a transaction is unlawful or not.
The guidelines are really out there intended to be transparent for the public and others as to how the DOJ and FDC are reviewing deals and reaching their conclusions, But in particular they're really important to provide guidance to companies
that are engaging in transactions. And that's particularly why we have IRA here today because this is what he thinks about a lot is the guidance to the companies that are thinking about proposing a deal, and particularly a deal that might have antitrust issues, because it tells us what the FTC and DOJ are going to look at in their investigation, what they're going to be thinking about if
they decide to challenge the deal. Now, the very first is version of the guidelines was in nineteen sixty eight. It's the first time they were published. The most recent
update before the current one was in twenty ten. So why did the FTC and DOJ decide to update them now in two thousand end of twenty three really to be implemented in twenty four Well, they say that it's to better reflect current market realities, advances since twenty ten in economics and law, and experiences of market participants that
provided feedback. When they put out a draft version of the guidelines last year, they took in a lot of comments from all sorts of market participants and took those into account for the final The most important thing I would say is that they're really meant to be guidance. They're not binding on the courts, though the judges do tend to follow them and have called them persuasive. Now, Ira and I have discussed the guidelines a bit and we decided we're going to talk about some specific ones.
There are eleven, to be precise, but we're just going to talk about three, and we're going to talk about their impact on deal making and what companies need to be thinking about. But before we get into those specific three, Ira, just tell me what is your overall impression of the guidelines just in general.
So just to set the stage a little bit, I'm not an antitrust practitioner. I'm not an attorney that advises companies on what to do how to structure their deals. What I do is I tell companies how they should communicate during the pendency of a transaction. And what's happened with these transactions and the new guidelines is that companies are under subject of the DOJ and FTC's criticism for
a longer length of time. And when you have a transaction, it affects the entire organization, affects how they do business,
affects their employees. And so what this does is it causes issues for the companies, and now, given these guidelines are touching upon areas that they haven't touched upon in the past, we've got to be a lot more thoughtful in giving guidance to companies of how they communicate because it's going to have a severe impact on their business before they even get to a court if they're challenged.
Yeah.
Interestingly, what you're talking about is almost become kind of a tool of the agencies, right because knowing that this pendency of a long investigation and scrutiny of a merger and all the news that comes with it can have a serious impact on a company. I think in a way there's a hope or an intention by the agencies to actually just get them to walk away and abandon a deal if the agencies don't like the deal. Not all deals are anti competitive, so like that is almost a tool.
Right, absolutely, And there's an irony to that as well, in that companies that are not the largest competitors in the space, ones that want to get scale to compete against the largest competitors in the space, are the ones that want to merge and get bigger so they have scale. However, they may not be quite big enough to have the ability to sustain to sustain a long attack from the anti trust regulators. So if you look at the largest competitors in the space, with literally billions of cash on
their balance sheet, they're going to fight this. And what happens is, as you said, for the ones that are smaller, they're going to be under pressure to abandon it because every day that a transaction goes on, they're not making key decisions on their technology, they're not hiring key people, they could be losing some of their best employees. Their
go to market strategy is also stymied by this. And then the regulators who said their goal is to block the transaction, whether it's in court or abandonment, and they'll take the victory either way.
It's interesting.
I mean, that's an interesting point because it's almost a perverse result, right because now essentially, because the investigations become so difficult, it really is supporting the big, huge incumbents and not promoting up and coming competition against those big incumbents, which is really what we need, what the.
Agencies exactly, because the ones that can slug it out with the government and stand up to the full weight and resources are the biggest and the strongest right, and the ones that are a tier below that could potentially be competition for the biggest and the strongest will fold under that pressure. So yes, it is a perverse incentive.
So let's move on. You wrote a short article I saw it on LinkedIn. Everybody should look for it on LinkedIn. A quick interesting read published a few weeks ago, called and you called it less visibility and a more complex narrative.
Why that title? What did you mean by that?
Because historically the level of antitrust enforcement has to do with which the which parties in power. But it was the general framework was the same. It was it was a level of enforcement, but the guidelines were the same of where they would be now. I think with the new guidelines it has changed substantially. You're introducing new elements
that weren't there before. You and I have spoken offline about, you know, the difference in the consumer harm standard where the consumer harm, if you could think about it, was more broadly, and even these new guidelines are still keeping the new the consumer in mind. I have a slightly different view. I think that the consumer or harm standard is very specific to price an output, and that the other elements that are now being included, such as labor
and suppliers, really upend the whole narrative. The less visibility part is because if in a merger, as an ARB, I would see the press release, one of the things you look for immediately is the synergy number. Because the synergy number is especially cost energies. It's captured in perpetuity, so it's really valuable if you can extract a lot of synergies both from labor in terms of layoffs and delayering,
as well as your supply chain. However, in the guidelines now the antitrust enforcers are specifically targeting that, and then that really upends the visibility with how companies should be communicating.
Yeah, it's interesting because I practiced a long time ago, and you know, when we would do our presentations to the FDC or DOJ as to why the deal had lots of efficiencies and have all sorts of pro competitive benefits, you would proudly put that bullet point about all you know, the redundancies and employment and all the layoffs that would come that would save these companies' money. And now that's moved from the pro side to the conside.
You know, which is a big shift.
Right, And because the premise used to be if I can extract these cost savings, then I will pass that savings along to the consumer because it makes me more competitive, and with the savings, I can keep my margins and capture share. But now that's upended.
It's upended.
Yeah, the agencies don't necessarily think that way anymore. I think they don't really see those benefits being passed on to consumers. Yeah, I can keep my margin, maybe I can increase my margin, is what they're thinking, rather than pass those benefits on. And you know that's why they've taken a different change of heart here.
Completely agree. And so there's a confluence of factors work into pricing strategy and how you go to market, and it's going to be incredibly difficult, even with the best of intentions and full transparency to specifically say how much of your current pricing strategy is related to synergies or
the shift in the market. But the regulators have taken a more skeptical view, and now they're including other things like the supply chain and labor, which I think is very problematic for the communications of the deal itself.
Right now and now we're veering off into what into the topics we wanted to get into. You know, the thing is, there have been a lot of webinars by law firms and other entities about these new guidelines. They're a big deal, right, they are a big change, and as I said before, it's the first time we've had an update since twenty ten, and so what I wanted to do was take a bit of a different approach, I think than some of the other webinars they focus.
They have focused a lot on the fact that the agency's reduced thresholds by which they presume a deal to be anti competitive, which means it'll more deal will be captured as potentially violating antidrus law. But instead, what we're
going to do is focus on three specific guidelines. There are eleven in total, and we're going to focus on three that IRA thinks really are important for companies from a communications perspective, and I think they're really important too, because the three we're going to focus on our really
brand new concepts for merger review and for guidelines. So let me just when I talk about the eleven guidelines and the three we're going to talk about, let me just sort of explain what the FTC and DJ did in the guidelines one through six are different from seven through eleven. They describe distinct frameworks that they're going to use in the very first instance, to decide whether a
merger raises antitrust concerns. And so I saw most of those, most of them, not all of them, as a restatement of the standard way that we think about, or used to think about deals that may violate the antidrust laws, though they've been refined and the standards have been tightened. So and I just want to throw this in there
because I don't want to gloss over it. Right, So, for instance, mergers that raise mergers raise a presumption of illegality when they significantly increase concentration in a highly concentrated market.
That's not new, you.
Know, this has been the this has been the way we think about mergers that can be illegal for years and years. But what these guidelines do is lower the threshold for what is considered a highly concentrated market. And that's a pretty big deal. But that's going to be a topic for another day, because today we're going to talk about three of the guidelines in seven through eleven, and those guidelines explain how to apply the frameworks in
one through six and specific settings. And what we're going to start with is Guideline nine. As I said, it introduces a new concept into merger review and it is related to multi sided platforms. IIRA, can you talk through what this guideline says about deals that involved multi sided platforms?
Sure? So, before I get into that, I think this is one of the mean motivations of why we have new guidelines, because you wound up with these incredibly powerful platforms that didn't fit need lee into a horizontal merger guideline, nor did they fit into a vertical merger guideline. And even if they did fit into a vertical merger guideline, they haven't been able to be enforced. They haven't had
a great success for vertical not at all. So the guideline considers competition between platforms, competition on the platform, and competition to displace the platform. Now I think this is problematic and that I don't mean that from the intention of the DOJ or the FDC. I just mean how it's going to work out and practice and how you articulate your rationale and how they view it. So, for example, it's got multiple parts to it, and where they have
is a conflict of interest. And the conflict of interest I think is very subjective because you're making a platform for your own benefit almost by definition. And there are certain things that are overt where you exclude I can patitor from your platform at all, or you put them further down on the page. But there's a whole continuum
of subtleties of where you could be on that. And I think it's going to be very difficult for companies to explain that something isn't a conflict of interest because if you have that accusation that it is, you have almost no evidence to refute it because it hasn't happened yet, and the anti trust agencies are loath to accept behavioral remedies, So you're being accused of something you haven't done yet. You can't promise not to do it in the future.
And these are fast moving technological platforms that the FTC and DJ are making assumptions on. You know, I said to you jokingly before. These are the agencies that sue to stop Hollywood Video and Blockbuster exactly, so you know their ability to predict the future actually on fast moving technology is questionable.
Yeah, and I think, I mean, merger assessment is all about trying to predict the future, and in particular in technology markets.
I think that's really really difficult.
And I think also what's notable I agree with you completely, and I think also what's really notable about this particular guideline is that it's sort of the first time the agencies come right out and say, well, we could consider a deal harmful where the companies don't compete at all horizontally, don't provide any of the same products or services, and by the way, don't even have a vertical relationship. You know,
there's no connection necessarily in the marketplace. And that's really new, kind of a big departure from the way we think about mergers. Okay, our next guideline is number ten. Again a new one, but it does reflect an area the agencies have focused on a lot in the past few years, in which we already talked about a little bit earlier in this podcast, and that's the impact of deals on employees, suppliers,
and other providers. This is what we think about as a monopsony concern, where they're too few buyers of a product or service rather than too few sellers. So I wrote talk about this one. I know you wrote about this in your article what is this guideline? Saying what does it mean for merging companies?
I think this opens up a lot of problems for companies, especially on the labor side, because there's always a natural tension between management and labor. Everyone's fighting for the same resources. So then this becomes something that could be extracted used as a wedge issue when labor has the ability to go to the government and have them on their side, raise potential issues and use it to their benefit for
labor negotiations when there really isn't an antitrust concern. This also starts falling into the realm of more political than empirical with respect to evidence, because you have a certain difference with respect to the parties and their view of labor. And then that creates an issue as well, because the economics will hold regardless of who's in power. So if you force companies into an uneconomic arrangement where you wind up killing pro competitive deals for a political choice on labor,
you're going to wind up harming the economy. And so it becomes very difficult from a communications standpoint. Companies will now have to think through these issues because they have to deal with labor. The employees are a very very important part of all mergers. So for example, when we have a merger communications package, one of the key stakeholders is the employees talking to them what it means, what your role is, why this is important, how this benefits everyone.
You know, other stakeholders like investors and vendors, etc. But you don't have a company without the employees. And my big concern is that it opens the door for bad actors for using a tool that wasn't available to them previously to potentially harm the merger, which could wind up hurting the company and the interest of employees. So it becomes really tricky from a communications standpoint.
Yeah, and in particular, as you mentioned, with these really long investigations, you want to hold on to your good employees, and now you risk losing them because there's a lot of uncertainty about what the final entity is going to look like at the end of this big FTC or DOJ investigation, potential challenge, et cetera. Interestingly, I raised.
With you earlier.
The FTC's lawsuit fouled yesterday against the Kroger and Albertson's proposed deal. And I know you haven't dug into that yet too much, but in that complaint, this we see this theory in action because in that as part of their theory of harm, in that complaint, the FTC has alleged that Kroger and Albertson's compete for labor and that this is going to reduce competition for labor and could hurt workers respect. So we're going to see how this plays out in court.
Yeah, it is that again that goes to an assertion that you can't disprove how do you prove that you're limiting the availability of labor or the competition for labor when people can freely move you There is no finite set of people in a given area. There is no specific skill set that's locked you know, down that you can move right and and it makes it very difficult.
But in this case, interestingly, and this really I think makes it difficult to refute in court. But the FTC they have to define a market, right, they have to say what is the sphere of the market in which
competition will be harmed? And their market for labor was defined very narrowly it was in localized areas union traditional grocery store workers essentially, which is really narrow because and who's to say that somebody who's working at a grocery store couldn't go work somewhere else, you know, no, doing something different, or move from grocery to drug store.
Or you know what I mean.
So it's a very narrow market. So it's hard to refute that there won't be harm in that narrow market. And that makes it even harder, right.
Of course, And so when you make the markets incredibly narrow, they're going to be anti competitive by definition ramifications exactly.
All right.
Our last guideline we're going to talk about is the last guideline, and that's eleven. It's another new concept, as I mentioned, and this one is really interesting to me because I'm not really sure how it's going to get applied. But it deals with partial ownership and minority interests. So according to the guidelines the agency, they are concerned with something called cross ownership, and that refers to holding a
non controlling interest in a competitor. And they're also concerned with something called common own ownership, which occurs when individual investors hold non controlling interests in firms that have a competitive relationship. What are your thoughts on this one.
I think this is potentially very damaging for investment over all because generally people don't want to tangle with the government. It's a huge distraction, very expensive, high stakes, your reputations out there, and if you have opaque rules where you can't disprove where you are, you can't. You can have a passive stake, but then if you're viewed as well you have a passive stake into competitors, maybe you're using
that information in an unlawful way. It's incredibly difficult to disprove that.
Sure.
Yeah, and then I think this is also kind of a shot against private equity.
Absolutely, and so this is.
A broader negative view of private equity, which certain people could argue is more political from an investment class standpoint. And then when you get into it, to solve it, the only really advice that you can give to solve it ahead of time time is you've got to think through all these potential issues. So you may have a passive investment a company that you've invested and then maybe do subsequent acquisitions that then imperil you, even though you
don't control management. The only thing that I could really think through is you would do what we refer to as a vulnerability matrix. Is you go through potential issues for transactions and assess what could happen and run through those scenarios, and then you prepare potential responses what we refer to as a rebuttal matrix, so that you're prepared. Because companies, generally speaking, have difficult responding quickly to news
or lawsuits or new action. So you have to have at least a decision making mechanism established ahead of time, and you've got to do your best to figure out what's around the corner, how this could be a problem. And if you're not the first one being sued or being investigated, as soon as there is an investigation, use that as a template to review all of your investments to see how that can potentially affect you.
Yeah, and also, you know you're in a situation where maybe it's you know, no changes are needed. You know, this is an interesting guideline. It's a brand new guideline, and we don't know how it will be treated by the courts. I mean these, as I said, these are not binding. This is not these are not laws. These are just guidelines, and it may be that these partial ownerships or these minority investments are essentially ultimately at the
end of that they consider just fine. But now there's a lot of prep work, a lot that has to go into thinking about these and understanding where you sit with respect to your investments. I think, in particular private equity, as you mentioned, because of this guideline. I mean, I just think this creates an enormous amount of uncertainty.
Yeah, and from a traditional investing standpoint, your risk reward. Right now, you're introducing an element of risk that you weren't previously assessing, and it could have substantial harm with respect to fines, penalty.
Exactly, reputations and reputation.
Your inability to invest in subsequent transactions. And by the time any of this is proved out in court, it's already decided. In the capital markets, it's already done, because no one wants to withstand the scrutiny and the pain from this point till they're till it's decided.
Yeah, I think maybe this guideline is intended very much to be a preventative, right in that respect, just you we're not going to challenge necessarily these investments, but we just want to stop them at the outset, right.
And so one could argue that's government overreach as opposed to being based off of the facts that they're chilling it for the specter of the government's interference and it's real and it'll work, yeah, and this will certainly dissuade people from making certain investments.
Well, we have to wrap up pretty soon.
I have one last anti trust question before a silly one, and that is, given all of this and what we've talked about, just generally, how are you advising clients in general, like your first approach with respect to these guidelines in future transaction activity.
I think this is really a new area for our clients. So we're incredibly deferential to anti trust counsel. That's what they do, they're they're practitioners. The big change is what's happening in the public domain. The anti trust practitioners are focused on their dealings with the agency and even potentially in court, but the companies have to endure everything before
that gets sorted out. And I think the weight of that is so much more now and there's so much more at stake in terms of executive reputation, company reputation, the ability to conduct business that they've got to through the they've got to think through the communications strategy with an antitrust timeline much much more, and think about how
it's going to play out in the media. And also that these type of guidelines can create new antagonists and you could be funded by competition, you could be funded by adversarial groups within your organization, and you've really got to gameplay this. You've got to write out scenarios, how are we going to respond, who's responsible for it, and figure it out.
Yeah, it's a lot, it's a lot to think about, and you know, we don't know what the lasting power of these particular guidelines are going to be. So it's a topic for today. We don't know if it's going to be a topic in a year from now, but you know, we'll have to see. So, as I said, that's our last substance of anti trust question.
But now we're going to have a little fun.
So and we do this with every single one of our guests on votes and verdicts. We have a last question for you, and that is, if you were stranded on a desert island, what music would you want to have with you, and I'm not putting pressure on you to be a colectic here. But our very first guest was Mick Malvaaney and I want to tell you what he said because it's an interesting group Dire Straits, the Beatles, White Album, Mozart and pet Chop Boys. So I wrote, what do you think.
Okay for me? Given that I love music and I'm incurably toned off, I would I would probably pick eminem because good choice. I can't rap. I like the music, and if I'm stranded and I have nothing else to do, maybe I can master rap.
God, I think that's a good reason.
You know what, It's as good as any right anyway, I think that's a rap for this Votes and Verdicts podcast.
Thanks again, Iira.
For joining us, pleasure being here very
Interesting, and thanks to everyone who listens in or listened in, and as usual, feel free to reach out to me at Bloomberg Intelligence with any thoughts, questions, or comments, and have a great day.