FILE PHOTO: People walk by a CVS Pharmacy store in the Manhattan borough of New York City, New York, U.S., November 30, 2017. REUTERS/Shannon Stapleton/File Photo
December 5, 2017
WASHINGTON (Reuters) – It is uncertain who in the U.S. government will carry out an antitrust review of CVS Health Corp’s <CVS.N> deal to buy health insurer Aetna Inc <AET.N>, but the drugstore company is likely hoping the potentially more lenient Federal Trade Commission gets the nod, antitrust experts say.
The Justice Department’s Antitrust Division and Federal Trade Commission share the job of reviewing mergers to make sure they don’t hurt consumers, but sometimes it comes down to a coin toss as to who reviews a deal that involves both agencies’ areas of expertise.
The Justice Department might be best-placed since it recently reviewed, and stopped, two insurance industry tie-ups, including Aetna’s plan to buy rival Humana Inc <HUM.N>.
Meanwhile, the FTC also has highly-relevant expertise, considering it reviewed CVS’s purchase of Target’s <TGT.N> pharmacy business in 2015 as well as another big pharmacy deal, Walgreens’ <WBA.O> purchase of much of Rite Aid <RAD.N> this year.
“If I were the parties, I would try to steer it to the FTC,” said Fiona Schaeffer of the law firm Milbank, Tweed, Hadley and McCloy. She described CVS’s plan to buy Aetna as “eminently approvable” by either agency because critics would be unable to come up with a convincing theory to show the deal will harm consumers.
The issue will likely be resolved in clearance discussions held almost immediately after the companies officially inform enforcers about the deal. In the meeting, both sides will consider each agency’s expertise in the industry in question as well as resource constraints.
Which agency gets the deal may also be left to chance.
“It tends it goes to a coin toss via a computer program if they (agency officials) can’t work it out,” said one expert, who asked not to be named to protect business relationships.
Antitrust experts said that the companies likely hope the Justice Department loses that coin toss.
After decades of allowing vertical deals like the CVS/Aetna tie-up, where a company merges with a supplier, the Justice Department just sued to stop AT&T <T.N>, owner of DirecTV, from buying Time Warner <TWX.N>, in late November.
In general, antitrust experts say, the antitrust agencies tend to approve vertical deals because of the efficiencies inherent in buying a supplier. The big exception – and this is the situation in AT&T’s deal for Time Warner – is if there is a fear that AT&T’s rivals would lose critical access to Time-Warner products like HBO or CNN.
Unlike the Justice Department, the FTC has shown no apparent interest in suing to stop a vertical deal. The agency is chaired by Maureen Ohlhausen, a moderate Republican, who will be replaced by Joe Simons, another moderate Republican, as soon as the Senate confirms him.
It would be a surprise for moderate Republicans to file a lawsuit to stop a vertical merger, according to six antitrust experts.
That said, two antitrust experts said they believed the Justice Department could try to stop this transaction for fear that customers would either face higher drug prices or have less choice.
“Events of the past three weeks suggest that (Justice Department’s top antitrust enforcer) Makan (Delrahim) might sue to challenge this deal,” said Chris Sagers, who teaches antitrust at Cleveland-Marshall College of Law.
(Reporting by Diane Bartz; Editing by Nick Zieminski)