A Misguided Assault on Mergers

(Bloomberg Opinion) -- With business owners idling factories, slashing payrolls and contemplating dire balance sheets amid the coronavirus pandemic, two lawmakers have hit on an unusual response: Harm the economy some more.

Senator Elizabeth Warren and Representative Alexandria Ocasio-Cortez last week unveiled the Pandemic Anti-Monopoly Act. Among other things, this would prohibit all large mergers, as well as those involving hedge funds or private-equity firms, until the Federal Trade Commission unanimously determines that small businesses and consumers are no longer under “severe financial distress,” whatever the commissioners may take that to mean.

This proposal is triply wrongheaded, and likely to harm the very people it's supposed to protect.

For a start, the plan is incoherent on its own terms. Thanks to the pandemic, dealmaking has all but stopped. The “predatory mergers” that Warren thinks “giant corporations and private equity vultures” will undertake during this crisis are entirely hypothetical. In any event, monopolistic practices are already illegal. All big mergers are reviewed by the Department of Justice or the FTC. Decades of rulemaking and jurisprudence have established standards for evaluating them and protecting consumers. No predatory deal is going to slip through the cracks thanks to the coronavirus. Yet the bill aims to block otherwise lawful and consensual economic activity on exactly that pretext.

Second, banning mergers isn't going to help mom-and-pop businesses or their employees. Quite the opposite: For a small company short on cash, an acquirer — however self-interested — could be a critical lifeline in this crisis. Impeding such deals would only induce those companies either to seek additional debt at a moment of acute stress or to shut their doors, harming their workers, suppliers and lenders in the process.

Moreover, the normal benefits of M&A don't disappear in a crisis. Mergers on balance offer companies an opportunity to boost growth, create synergies, leverage economies of scale, increase productivity and otherwise become more competitive. That's why they're legal in the first place. Some deals work out and others don't, but surely the companies involved understand their interests better than distant lawmakers.

Which brings us to the third and most important point: The bill would impede the recovery. Offering companies a government lifeline — as measures such as the Paycheck Protection Program are doing — is entirely justified at the moment. But such relief can't last indefinitely; normal economic activity must eventually resume. When it does, prudent mergers and acquisitions should make it easier to direct capital to promising businesses, bolster balance sheets, preserve valuable assets and generally help the country get back on its feet.

Outlawing this restorative process is likely to harm the very businesses and workers the bill's sponsors say they want to help. To make matters worse, Warren has threatened to include the measure in future relief bills, which risks compounding the damage by delaying essential fiscal support. About the only beneficiaries of this misguided effort, in fact, seem to be the legislators advancing it, to the acclaim of their most fervent supporters.

Politics doesn't stop in national emergencies, of course. But a brief respite from cynicism doesn't seem too much to ask.

Editorials are written by the Bloomberg Opinion editorial board.