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Industry Spotlight > Clearing and Custodial Firms

Schwab-TD Deal Unlikely to Unravel Due to Biden's Draft Merger Guideline

By Dinah Wisenberg Brin

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What You Need to Know

  • Draft merger guidelines indicate that regulators plan a more stringent merger enforcement approach.
  • However, deals that have already been closed are likely not in danger.
  • Unwinding mergers after the fact would be like unscrambling an egg, noted one antitrust expert.

The Biden administration’s draft merger guidelines, being handled by the Department of Justice and the Federal Trade Commission, indicate that regulators plan a more stringent merger enforcement approach. But that doesn’t necessarily mean the proposals will pose retrospective risk to deals that have closed at this point.

While those opposed to Charles Schwab’s TD Ameritrade acquisition, which closed nearly three years ago, for example, may view the draft guidelines as new fuel for a legal challenge and possible reversal, antitrust experts suggested in recent interviews that the proposals, if finalized, shouldn’t jeopardize the $22 billion deal.

“The proposed new merger guidelines clearly signal a more aggressive approach toward merger enforcement by the Department of Justice and the Federal Trade Commission than might have been the case in earlier times,” John Mayo, Georgetown University economics, business and public policy professor and executive director of the school’s Center for Business and Public Policy, told ThinkAdvisor recently.

It’s unclear whether the draft guidelines will even survive in their current state, given substantive issues raised in the ongoing public commentary period about the agencies’ tenor and methods, Mayo, who authored an antitrust textbook, added.

Merger guidelines have always allowed for both prospective analysis that can halt mergers before they can happen and for unwinding mergers after the fact, Mayo noted in an interview.

“In reality, unwinding mergers after the fact is exceedingly difficult. It’s the problem of unscrambling an egg,” he said. 

Unwinding Would Be ‘Very Difficult’

In the Schwab-TD Ameritrade deal, “these are companies that I gather spent a lot of time and effort trying to merge their operational systems so that investors could seamlessly use a common platform. That suggests to me that it would be very difficult to unwind their merger and that will probably give pause to the agencies — even if they were thinking about challenging this merger — that will give extra pause to the agencies,” Mayo said.

Given the three years of history with the merged company, it’s “highly unlikely” the agencies themselves would reopen the case absent striking evidence of anti-competitive effects, Mayo said.

Historically, merger guidelines have represented a consensus approach among antitrust economists and lawyers as to the appropriate lens for assessing merger competitiveness, the Georgetown professor said, adding, “The new proposed guidelines are straining that consensus.” 

Courts might even rely less heavily on the new guidelines considering the controversy surrounding them, Mayo suggested. Some people have also suggested the agencies might lose more antitrust challenges in the future by relying on the newly proposed guidelines and putting themselves at odds with the modern economic consensus on antitrust policies, he said.

Schwab continues to integrate its TD Ameritrade merger. The firm has been migrating client accounts this year, with the next group planned for Labor Day weekend, followed by another weekend in early November, then a small group in early 2024.

Meanwhile, a federal antitrust case in Texas seeks to unravel the deal; earlier this year, the judge denied Schwab’s motion to dismiss the case, ruling the retail investor plaintiffs had stated plausible claims for relief sufficient to defeat that motion.

In July, the DOJ and the FTC released the 13 draft merger guidelines, which are currently undergoing a 60-day public comment period, until Sept. 18.

“Unchecked consolidation threatens the free and fair markets upon which our economy is based,” Attorney General Merrick B. Garland said in a release. “These updated merger guidelines respond to modern market realities and will enable the Justice Department to transparently and effectively protect the American people from the damage that anticompetitive mergers cause.”

The guidelines are:

  1. Mergers should not significantly increase concentration in highly concentrated markets.
  2. Mergers should not eliminate substantial competition between firms.
  3. Mergers should not increase the risk of coordination.
  4. Mergers should not eliminate a potential entrant in a concentrated market.
  5. Mergers should not substantially lessen competition by creating a firm that controls products or services that its rivals may use to compete.
  6. Vertical mergers should not create market structures that foreclose competition.
  7. Mergers should not entrench or extend a dominant position.
  8. Mergers should not further a trend toward concentration.
  9. When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series.
  10. When a merger involves a multi-sided platform, the agencies examine competition between platforms, on a platform, or to displace a platform.
  11. When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers or other sellers.
  12.  When an acquisition involves partial ownership or minority interests, the agencies examine its impact on competition.
  13. Mergers should not otherwise substantially lessen competition or tend to create a monopoly.

More Views on Schwab-TD Ameritrade

Shahid Naeem, senior policy analyst at the American Economic Liberties Project, a group working against concentrated economic power, suggested the guidelines present an opportunity to address the Schwab-TD Ameritrade merger retrospectively.

“The merger was clearly anticompetitive. It supercharged consolidation in retail order flow and should have been stopped dead in its tracks. The outdated approaches of previous enforcement regimes, as encapsulated by this deal, routinely shirked market realities and led to significant consolidation across the economy,” Naeem said by email.

“These consequences are exactly what the agencies’ newly updated merger guidelines are designed to avoid. Most importantly, the new guidelines will provide courts the tools they need to evaluate the competitive impacts of mergers in our modern economy and determine whether transactions violate our nation’s antitrust laws.

Had these merger guidelines been in place for Charles Schwab-TD Ameritrade, it’s hard to imagine the deal and its associated harms would have gotten past regulators so easily,” he added.

Now that Judge Amos Mazzant in Texas’s Eastern District Court has ruled that the private antitrust lawsuit seeking to unwind the deal can move forward, Naeem said, “the new merger guidelines should provide the court support in resolving that case.” 

The draft guidelines are meant in part to provide courts the agencies’ perspective on how to determine whether a merger is unlawful, “so, yes. In the case of Charles Schwab-TD Ameritrade, the new merger guidelines should help Judge Mazzant evaluate whether the deal should be unwound — that’s exactly what they’re designed for.”

Like Georgetown’s Mayo, however, Harold W. Furchtgott-Roth, senior fellow at the Hudson Institute, a nonprofit research and policy organization promoting U.S. leadership for a “secure, free and prosperous future,” also doubted the guidelines would unravel the Schwab-TD Ameritrade deal.

The guidelines are just that, not regulations or law, Furchtgott-Roth told ThinkAdvisor. Even if a court found a merger to be anti-competitive, unwinding it isn’t the only nor the easiest remedy, he said.

The FTC and the DOJ’s antitrust division aren’t lacking for weapons to go after companies they think are engaged in anticompetitive conduct — remedies other than unwinding a merger, he said.

Even if the draft guidelines are finalized, Furchtgott-Roth said,  “I think a court would be hard pressed to say at the time the merger was approved, however many years ago,” there was a mistake made because the parties didn’t follow guidelines that weren’t even drafted yet. 

Georgetown’s Mayo said there are operational, economic and legal reasons to doubt the DOJ and FTC will target the Schwab-TD Ameritrade merger for retrospective enforcement.

Furchtgott-Roth sees “a much greater risk moving forward” given FTC Chair Lina Khan’s public statements that the commission may not finish a merger review before parties want to close, so that they close at their own risk. That puts parties on notice that the FTC could unwind mergers going forward, he said.

While unfamiliar with the antitrust lawsuit targeting the Schwab-TD Ameritrade merger, Furchtgott-Roth said he doesn’t see a judge using the draft guidelines as a basis for remedying it. He said he wouldn’t cite them at all if he were a judge seeking to remedy a past merger, and could come up with other reasons.

Furchtgott-Roth called the draft guidelines a “radical departure” from principles that courts have used in merger cases over the past 50 years.

“I call them a blast from the past,” he said of the draft guidelines, noting they cite cases from a half century ago while citing few from the past 40 years. “It’s kind of breathtaking to just look at it.”

Credit: Shutterstock

Dinah Wisenberg Brin

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