The news that Anheuser-Busch InBev (NYSE: BUD ) finally settled its differences with the Justice Department is welcome, as it allows the acquisition of Mexico's Grupo Modelo to be finally completed.
Bud didn't get everything it wanted and has to sell the entire U.S. Modelo business to Constellation Brands rather than just its U.S. production. Justice didn't stop the deal cold, and both sides gave up a little. Everyone wins, right?
Wrong! There's a supposition here the Justice Department actually knows what it's doing, that it knows best how to promote competition. Did anyone ever consider what makes them think they know what's right for the market? Who are these guys, anyway? Have they even ever run a business?
The view from the ivory tower
The answer is largely "no." These are government lawyers and economists making decisions from afar who have no real-world experience in owning and operating a business, and their decisions have littered the marketplace with failures.
The Justice Departmnt blocked Staples' acquisition of Office Depot (NASDAQ: ODP ) several years ago for fear the office-supply market would become too concentrated, while also blocking 3M from buying Avery Dennison. Who knew paper clips, pencils, and sticky notes were such a key industry?
Yet the interference ensured that the industry suffered from too many suppliers, damaging all three players. Now the impaired Office Depot has to merge with the also-impaired OfficeMax in hopes of saving both of them. As we should have learned from Sears Holdings' purchase of Kmart (which Justice didn't oppose), merging two ailing companies doesn't necessarily make a healthy one.
Hanging up on competition
AT&T (NYSE: T ) was also successfully prevented from buying Deutsche Telekom's diminished T-Mobile subsidiary, and while many hailed the decision as preventing the creation of a duopoly between Ma Bell and Verizon, the impetus behind the merger was that consumers really didn't want DT's service to begin with. It wanted to get out of the U.S. market, and AT&T wanted T-Mobile's spectrum to improve its woefully underperforming network.
Had the deal gone through, rather than stifle competition AT&T and Verizon would have remained blood enemies with even greater intensity. If they attempted to raise prices as was feared, Sprint Nextel, MetroPCS (NYSE: TMUS ) , and a host of smaller services would thrive as a low-cost alternative. Instead, Deutsche Telekom has to go through the rigmarole of acquiring MetroPCS and then selling the shares of the newly public company later on to get out of the U.S. market. Is a T-Mobile/MetroPCS network really going to be a more effective service?
A taxing decision
It's interesting that Justice's deputy assistant AG for economic analysis at the antitrust division lists the AT&T/T-Mobile case as one of her most satisfying accomplishments. The other was preventing H&R Block (NYSE: HRB ) from acquiring tax return software rival TaxACT. Yet by doing so, the Justice Department severely crimped Block's ability to compete effectively against Intuit's market-dominating TurboTax software. When there are so many options open to taxpayers in how they file their taxes -- software, pencil-and-paper, a local accountant -- does anyone really think Justice actually helped anyone by stepping in?
A merger of unequals
There are plenty of examples of mergers that did happen but shouldn't have, but that doesn't mean Justice should involve itself. Time Warner's acquisition of AOL is a particularly infamous example, as was Sears, yet the market dealt appropriately with them both.
When it comes down to it, a reasonable argument can be made that the Justice Department's real goal is to have only damaged companies join forces, but pairing two sick companies doesn't mean you'll get healthy competition.
Because poorly operated businesses ultimately waste resources, Justice should really advocate for pairing an impaired company with a successful one. But when you're sitting in your law office or ivory tower, it's hard to really know what it takes to run a business or make a profit, especially if you can't see over your law books and calculators.
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