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DOJ Sees Gains in Long-Shot Antitrust Challenges Amid Defeats

Oct. 19, 2022, 4:55 PM

The Justice Department’s antitrust unit is walking away with some consolation prizes despite a string of courtroom losses.

The agency’s lawsuit against Booz Allen Hamilton’s $440 million acquisition of competitor EverWatch slowed the deal for several months, helping to ensure the companies continue to compete on a federal intelligence contract, a federal judge acknowledged. The suit, now in limbo as the deal has closed, also spurred Booz Allen to discard its veto power over EverWatch bids even while the deal was pending.

UnitedHealth Group Inc. agreed to spin off more of Change Healthcare Inc.'s business than originally proposed in its $7.8 billion acquisition, after the agency unsuccessfully sued to block that deal.

The DOJ’s recent losses—including largely unsuccessful cases involving the labor market and chicken industry—continue to trigger questions about the department’s litigation tactics, resources and attorney trial experience. But the companies’ concessions and tweaks to deal terms likely incentivize the DOJ to keep suing to block deals it considers to be anticompetitive.

The losses have not produced signs that the DOJ will be deterred from pursuing the aggressive antitrust enforcement the Biden administration has called for, agency watchers said.

“In terms of the government’s approach to bringing difficult cases, there should be a ‘no guts, no glory’ approach,” said Christine Chabot, a professor at Loyola University Chicago School of Law. “It’s going to not just affect parties in this suit, but have a deterrent effect: other merging parties and potential defendants are watching. If they see these challenges, they may adjust their conduct.”

The mere threat of DOJ lawsuits can quash mergers, said Douglas Ross, a professor at the University of Washington School of Law. Companies face massive financial, time, and reputation costs by inviting merger challenges, even if they ultimately win, he said.

Four companies have abandoned plans to merge after DOJ challenges or investigations in the last 18 months, according to DOJ data. Such results could spur further government challenges even if DOJ action may not have been the determining factor in merger cancellation, Chabot said.

Booz Allen

The Justice Department’s antitrust division last week lost its request for a preliminary injunction pausing the Booz Allen-EverWatch deal. But the companies had kept competing separately for a sensitive National Security Agency contract at the heart of the challenge.

“To some extent, the very existence of this litigation gave the Government what it was looking for—competition fueled by uncertainty,” Judge Catherine C. Blake of the US District Court for the District of Maryland wrote in her opinion, unsealed Oct. 17.

Jonathan Kanter, the DOJ antitrust division chief, was quick to point out the same after the ruling.

“The Department’s lawsuit, as the Court recognized, fueled competition for an important national security contract by forcing the parties to prepare bids independently and without certainty of a merger,” Kanter said in an Oct. 11 statement.

Booz Allen said in July court filings that it dropped a merger agreement clause to seize veto power over EverWatch’s bids even before the deal closed.

The clause had been a point of contention, as Justice Department attorneys argued that it was evidence that the companies had little incentive to compete.

The companies closed the deal Oct. 14, hours after the DOJ asked Blake for more time to consider appealing her ruling. The department hasn’t said whether it plans to continue its lawsuit to seek the unwinding of their integration.

‘Pyrrhic Victories’

Such small concessions don’t justify the DOJ’s time and the costs of litigation, said Mark McCareins, a professor of business law at Northwestern University’s Kellogg School of Management.

The department may be better off sticking to bread-and-butter cases, instead of pursuing long-shots, he said. And a cost-benefit analysis may be needed, he said.

“The DOJ can conjure up pyrrhic victories, but realistically, you have to look at the costs associated with litigation,” McCareins said. “If you want to litigate and file suits to block mergers and put people in jail, that’s your job. But you need to find better cases and litigate better. If you bat 0 for 10, there’s a cost.”

Still, the DOJ’s decisions to try to block recent deals and crack down on other alleged antitrust violations weren’t entirely without merit, said Bill Baer, the former assistant attorney general of the antitrust division during the Obama administration. These cases were often similar to other mainstream antitrust enforcement actions, he said.

But the issue the DOJ ran into is that courts often give the benefit of the doubt to merging defendants in determining the risk of anticompetitive harm and the value of proposed remedies, Baer said.

“They’ve lost in some cases because the courts found the facts weren’t there, or because they went immediately to accepting assurances that the merging parties would be good little boys and girls,” Baer said.

Still, there’s no getting around that the defendants’ concessions and tweaks have been notably insignificant, Baer said.

“Is a half-assed fix to a serious competition problem better than no fix whatsoever? Sure, but that doesn’t mean it’s not half-assed,” Baer said.

To contact the reporter on this story: Dan Papscun in Washington at dpapscun@bloombergindustry.com

To contact the editor responsible for this story: Roger Yu at ryu@bloombergindustry.com; Keith Perine at kperine@bloombergindustry.com