What's going on?
On Monday, an American court blocked the proposed takeover of Humana, a large health insurer, by its bigger rival Aetna due to competition concerns. It’s a prime example of competition laws in action.
What does this mean?
Back in July 2015, Aetna agreed to buy Humana in a deal that was worth about $37 billion. It was meant to combine the second- and fifth-largest US insurers (by market share), but the US government challenged the deal in court, saying that it would violate competition laws (called “antitrust laws” in the US). Such laws exist to stop companies from gaining too much sway over any one industry, which could give them the power to set prices unfairly high. Aetna says it is considering appealing the court’s decision, but that didn’t stop its stock price from falling 3%.
Why should I care?
The bigger picture: Previously agreed deals are falling apart.
Many large mergers and acquisitions (M&A) that were agreed in 2014 and 2015 have since unravelled due to competition concerns (e.g. Halliburton and Baker Hughes and Office Depot and Staples). It’s a useful reminder that there is often a risk that agreed deals won’t become completed deals.
For the market: Investors are hoping that Trump’s attitude to competition laws will be more lenient.
Trump has said that he intends to drastically reduce regulations on companies, which could indicate that his administration will be less likely to challenge big M&A deals. If so, that would be good for the prospects of pending deals and it could also encourage more deals, like a tie-up between Sprint and T-Mobile (as JPMorgan speculated on Monday could happen). But it’s also worth noting that, on the campaign trail, Trump pledged specifically to block the recently agreed AT&T/Time Warner deal. Investors are waiting for an indication of his administration’s attitude to competition regulations.