The Politics of the New Trust-Busting
During his first year in office, President Joe Biden watched as two signature legislative victories—the COVID relief package followed by the bipartisan infrastructure bill—were overshadowed by dual debacles. His inability to advance Build Back Better and the defeat of voting rights legislation resulted not merely from Republican opposition but, most embarrassingly, dissent within the Democratic party. The constant drumbeat of negative press coverage of his disunified party is one reason why Biden suffers from approval ratings hovering in the mid-to-low forties.
If Biden is seeking an issue to help revitalize his administration and restore his popularity, one could argue he should take a page from the playbook of Theodore Roosevelt, the populist president who used the Sherman Act to break up, among others, the railroad trusts. Often called a “trust buster,” Roosevelt said he was trying to deliver for ordinary Americans a “square deal.” Perhaps Biden, instead of instituting a new Great Society, as progressives had hoped, should aspire to create a new square deal.
In fact, Biden signaled his belief in competition last summer when he signed an executive order championing competition and denigrating monopolistic business practices. “The American promise of a broad and sustained prosperity depends on an open and competitive economy,” begins the 13-page order, which covers several sectors of the economy—agriculture, communications, defense, and more.
As it turned out, Biden meant what he said. Consider the proposed acquisition of Aerojet Rocketdyne Holdings, long the preeminent U.S. manufacturer of rocket engines, by Lockheed Martin, the nation’s number-one defense contractor by sales. The deal, worth $4.4 billion, was announced by Lockheed on December 20, 2020, in the final days of the Trump administration, which had taken a laissez-faire approach to mergers and acquisitions. But by July 2021, around the time Biden signed his executive order affirming competition, the Lockheed-Aerojet merger was anything but a done deal.
Critics of the deal, such as Senator Elizabeth Warren, argued that it would further reduce competition in the defense industry, which has contracted over the last 30 years due to a spree of mergers, and jeopardize national security. Lina M. Khan, chair of the Federal Trade Commission, the agency tasked with reviewing corporate mergers and enforcing civil antitrust laws, made her feelings known in an August 6, 2021 letter to Warren, who had relayed concern about the deal. In cases of major vertical mergers, such as the Lockheed-Aerojet deal, Khan wrote, there is a higher risk of “a reduction of competition post-merger.”
The fate of the merger remained uncertain primarily because it was unclear how all the FTC commissioners would vote on the matter. Khan and one other commissioner appointed by Biden were clearly in favor of using regulation to promote competition, but two other commissioners were named by Donald Trump. (A fifth FTC seat remains unoccupied because Biden’s nominee has not been approved by the Senate.) As a result, Lockheed announced last fall that the merger was delayed, with CEO Jim Taiclet reassuring investors the deal “continues moving through the regulatory approval process.”
But any hope of the deal being approved ended last week when the FTC voted 4-0 to file a complaint in federal court seeking a preliminary injunction to block the merger. Apparently, Khan convinced both Trump-appointed commissioners to join the Biden-appointed commissioners to kill the deal. (How ironic that two Democratic senators are blocking Biden’s legislative aspirations while two Trump-appointed FTC commissioners are allowing Biden to advance his pro-competition agenda.) The FTC challenge was so rare that, should the case end up being litigated, it would mark the first time a defense merger has been contested in decades.
“It was a bold move,” says Diana Moss, president of the American Antitrust Institute,
but it was a good move in the interest of competition and national security. The Biden administration is getting serious about competition and raising levels of market power in the economy. The fact that the administration is willing to take on a company as big as Lockheed Martin is notable. It shows they are committed to competition enforcement.
Perhaps the fate of the Lockheed-Aerojet deal was sealed earlier in January when the FTC and the Department of Justice announced a joint public inquiry into mergers. From 2020 to 2021, merger filings more than doubled, underscoring the rapidly growing tendency in corporate America to consolidate. “Illegal mergers,” Khan said at the time of the announcement, “can inflict a host of harms, from higher prices and lower wages to diminished opportunity, reduced innovation and less resiliency.” Government should “forcefully enforce the law against unlawful deals.”
For the joint FTC-DOJ project, the public is invited to supply comments on how to modernize merger guidelines and promote competition. One of the people who will be submitting comments will be Thomas Mayman, former owner of Maycom, a family-owned cellular telephone business with stores in Florida, North Carolina, and South Carolina. An immigrant from Cornwall, England, Mayman started his company some 25 years ago and saw it grow, once it became a part of Sprint, to 63 stores. His business flourished—he even had hopes of turning it over to his son one day—until April 2018 when a merger between Sprint and T-Mobile, which at one point appeared to have been called off, suddenly was announced to be a fait accompli. (It was finalized in April 2020.) It soon became clear that T-Mobile had acquired Sprint—and not for its stores or its customers but for its network of cell towers.
“Shortly after the . . . merger,” a complaint Mayman has filed against T-Mobile alleges, “T-Mobile began engaging in a litany of anti-competitive, unfair and deceptive behavior aimed at driving Maycom and other legacy Sprint retailers out of the marketplace.” The complaint states: “In a matter of months, T-Mobile unlawfully devastated Maycom’s business. When the dust settled, of the 63 stores that Maycom once owned, only 28 remained to be sold at a T-Mobile-created depressed value, 4 were given a limited 1-year lease renewal to operate, and 31 stores were shuttered.” Simply put, since the stores were not what T-Mobile wanted, many were closed or forced out of business.
When Mayman decided to sell his company to avoid additional stores being closed, he was told only two potential buyers would be approved by T-Mobile. When he finally sold in January 2021, after the Trump DOJ and the Federal Communications Commission approved the merger, the value of Maycom had plummeted by 90 percent. “We were financially crippled and emotionally drained,” Mayman says. “After the merger, there was never a point in the process when we didn’t feel like we were being screwed. The only reason we were able to sell to the company we sold to was because a former T-Mobile executive joined them.”
Mayman is not the only store owner harmed by the T-Mobile-Sprint merger. Joseph Dowdy, an attorney for Mayman, has filed a dozen similar lawsuits with another dozen pending. “T-Mobile only wanted the network—the new 5G,” Dowdy says. “And since T-Mobile could close a store for any reason, they did this with the Sprint stores, and they basically drove these owners out of business.”
It’s unclear what the Biden administration will do with reports like the one Mayman will soon be filing; based on similar cases in California, the state attorney general is considering revisiting the Sprint-T-Mobile merger, which various attorneys general had opposed, with the aim of potentially imposing penalties.
But there is no doubt that Biden’s pro-competition, anti-monopoly message is one that resonates with the public, casting him in the role of a populist president, and his emerging leader on the issue is Lina Khan. “With her leadership style,” says Hank Naughton, a defense industry analyst, “she has staked out her ground as supporting competition and stopping monopolization. She’s made a name for herself. Blocking the Lockheed-Aerojet merger is a big win for the Biden administration.”
Some critics believed Biden was pursuing this course on antitrust because his ultimate goal was to break up mammoth conglomerates like Facebook and Amazon, which are continuing to grow often by acquiring companies they perceive to be competition. But perhaps another goal for Biden is to reach a more mainstream constituency—like farmers. A significant portion of his executive order on competition is devoted to agriculture, one of the business sectors most harmed by consolidation.
“Our national Fairness for Farmers campaign has highlighted the devastating impact consolidation has had on America’s family farmers and ranchers all over the country,” says Rob Larew, president of the National Farmers Union. “We are hopeful that the administration’s renewed focus on boosting competition and reducing prices will force the changes needed to create an even playing field for those who take on the responsibility of feeding America.”
At a time when the nation remains gripped by division, perhaps pursuit of a “square deal” for consumers and business owners could find support across the political spectrum and give Biden the bipartisan mantle he often says he seeks.