Over the past twelve months, lawmakers in Washington have taken steps to clamp down on the power of big tech. Driven by a misguided belief that big is bad, lawmakers have put forward a slew of proposals that would limit the ability of tech companies to deliver consumer benefits. Nowhere is this more evident than in the Merger Fee Modernization Act of 2021, one of five bills recently proposed by House Democrats after a “top to bottom” investigation of the tech industry.
A companion bill is currently being considered by the U.S. Senate, increasing the likelihood that the bill could become law.
Currently, the Federal Trade Commission employs a three-tier fee schedule based on the size of a merger transaction. For transactions valued at between $92 million to $184 million, the fee is $45,000. For mergers valued at between $184 million to $919.9 million, the fee is $125,000. Finally, for mergers valued at more than $919.9 million, the fee is $280,000.
In its simplest form, the Merger Fee Modernization Act of 2021 would change the filing fees required to initiate mergers and acquisitions. While most fees would be cut, the bill would raise the filing fee required for larger mergers. For example, mergers valued at between $1 billion and $2 billion would be required to pay $400,000, and mergers between $2 billion and $5 billion would be forced to pay $800,000. For mergers above $5 billion, the fee would be set at $2,250,000.
MFMA would also raise the filing fees each year “by an amount equal to the percentage increase, if any, in the Consumer Price Index,” meaning mergers at all levels would become more expensive each year.
Arguably, the biggest problem with raising the merger filing fees is that it will disincentivize larger companies from growing, acquiring new lines of business, and enhancing consumer welfare. When Facebook purchased Instagram for $1 billion in 2012, it would have been required to pay a $280,000 filing fee. If Facebook tried to make a similar acquisition today, it would be forced to pay almost twice as much. This would undoubtedly make the cost of the merger more expensive, thereby disincentivizing these mergers from taking place.
For consumers, this could result in fewer consumer benefits. When Facebook purchased WhatsApp for $19 billion in 2014, it was able to take a relatively small subscription messaging service and turn it into a free service, with advanced data encryption that serves millions of people. Had Facebook been forced to pay the higher fee, it is likely the company would have kept the subscription fee, and it certainly would have had less capital to invest into protecting consumers’ data or ensuring a friendly user interface.
It is also possible that Facebook would have decided the filing fee made the deal simply uneconomical, meaning consumers would not have experienced the significant benefits the merger brought.
However, one aspect of the bill that should enjoy broad support is the increased appropriations for antitrust enforcers at the Department of Justice’s Antitrust Division (DOJ) and the Federal Trade Commission (FTC). Since 2010, both agencies have been forced to deal with falling budgets in real terms, limiting their ability to enforce America’s antitrust laws correctly. In her statement to the Senate Subcommittee on Antitrust, Consumer Protection, and Consumer Rights, Professor Nancy L. Rose stated that “chronic underfunding of the enforcement agencies poses a tremendous impediment to effective enforcement.”
If MFMA were to become law, the DoJ’s Antitrust Division would see an appropriation of $252,000,000 while the FTC would see an appropriation of $418,000,000. In 2021, the DoJ’s Antitrust Division only received an appropriation of $184 million, while the FTC requested a congressional appropriation of $330 million.
While merger-filing fees might not be the most exciting aspect of antitrust reform, it is nevertheless a critical component of any potential change. Unfortunately, the proposals in their current form simply defer to an outdated big is bad mentality that ignores the numerous benefits mergers and acquisitions can provide. While the increased appropriations for antitrust enforcers will certainly be welcomed, raising the costs of mergers and acquisitions will undoubtedly harm consumer welfare and deny them the ability to benefit when two large companies combine. Rather than making mergers and acquisitions needlessly expensive, Congress should focus on crafting legislation that prioritizes consumers, not outdated ideologies.