In recent years, the Federal Trade Commission (FTC) has taken a notably aggressive stance on mergers and acquisitions under the leadership of Chair Lina Khan. This has sparked widespread debate and concern among various stakeholders in the business community. US Policy Editor Charles Sauer delves into the impact of Khan’s regulatory approach, highlighting perspectives from critics like CNBC commentator Jim Cramer, who argue that her policies are stifling competition and harming small businesses.
He writes:
“Federal Trade Commission (FTC) Chair Lina Khan is often referred to as a neo or hipster Brandeisian in reference to Supreme Court Justice Louis Brandeis. This is because Brandeis’s “big is presumed bad” approach to antitrust clearly influenced Chair Khan’s “holistic” approach. However, a more apt title for Chair Khan may be the Miley Cyrus of regulatory policy because whenever a business is considering a merger or acquisition, Chair Khan’s FTC comes in like a wrecking ball.
Under Khan’s leadership, the FTC has filed a record number of lawsuits and second requests challenging mergers and acquisitions. This has led some observers to refer to an FTC-imposed “merger tax.”. CNBC commentator Jim Cramer calls Khan a “one woman wrecking crew” for the impact her approach to antitrust enforcement is having on the stock market. Cramer has observed that Khan and her allies justify her approach to antitrust as necessary to address the threat to competitive markets, and even democracy, posed by big corporations. Yet, while Khan may be particularly concerned about big tech companies like Amazon, Meta (parent company of Facebook, Instagram, and What’sApp), and Alphabet (parent company of Google and YouTube), Khan’s main victims are actually small businesses.
According to Cramer, the fear that Khan will subject small companies to costly litigation is creating a reluctance to undertake even the most beneficial of mergers or acquisitions. The result is that mergers and acquisitions will only occur if one, or both, of the parties involved is a big corporation. Thus, Khan’s merger tax is limiting the ability of small businesses to compete with their bigger rivals, thus increasing the size and scope of large corporations and making markets less competitive.
As Cramer put it “…. scale matters…. If you don’t allow smaller companies to gain scale by, say, letting Walgreens buy Rite Aid, we end up with a weak Walgreens, and a bankrupt Rite Aid, and a dominant Amazon.” Cramer’s point does not mean, however, that big companies like Amazon are not also hurt by Khan’s wrecking ball. Any business, no matter how large, suffers when they are forced to divert resources away from improving their operations to defending a proposed merger, acquisition, or other transaction before a federal bureaucracy and/or federal court.
Khan’s use of antitrust law to protect small businesses often ends up hurting businesses of all sizes. For example, one of the bases for the FTC’s antitrust lawsuit against Amazon is that the company supposedly charges excessive fees to small businesses that wish to use the Amazon platform. Amazon has also been criticized for requiring small businesses to use Amazon warehouse and shipping services. This ignores the fact that the only way Amazon Prime can meet shipping guarantees for goods purchased by a non-Amazon retailer is by requiring every business that uses the Prime delineation to use Amazon’s shipping services. If the FTC, or Congress, succeeds in micromanaging Amazon’s relationship with small businesses, Amazon may stop allowing small businesses to use their platforms, or at least participate in programs like Prime. This will deprive small businesses of the opportunity to reach new customers.
Small tech companies will also suffer from the FTC’s attempts to stop Big Tech from acquiring smaller tech companies. One reason people invest in small tech startups is the hope that they will receive a large payout when the company becomes successful enough to be acquired by a larger firm. Thus, by stopping Big Tech from acquiring smaller companies, the FTC is once again acting like a wrecking ball.”
