DJ Facebook Turns Back Antitrust Charges. But Regulatory Risk Is Rising. -- Barrons.com

By Eric J. Savitz

Facebook got a big courtroom win this past week, when a federal judge tossed out a Federal Trade Commission complaint arguing that the company violated antitrust laws, and dismissed a parallel complaint from a group of state attorneys general making similar claims.

But regulatory battles over Facebook (ticker: FB) and its megatech brethren are just beginning, as we've noted in Tech Trader. Facebook, Apple (AAPL), Alphabet (GOOGL), and Amazon.com (AMZN) all face state and federal regulatory, legislative, and legal issues in the U.S. and around the world. Among other things, the House is now considering a package of bills that would severely limit the ability of tech megacaps to expand via acquisition -- and could force them to sell some existing businesses. While all four produce tremendous profit and revenue growth, antitrust will likely be a drag on their stocks for months to come.

In his ruling, Judge James Boasberg of the U.S. District Court for the District of Columbia found that the FTC had failed to prove that Facebook has monopoly power and that its assertion that Facebook controls 60% of the social networking market was unsupported by evidence. The decision spurred a rally in Facebook shares that drove its market cap above $1 trillion for the first time.

But the judge left the door open for an amended FTC complaint focused on Facebook's acquisitions. "The agency is on firmer ground in scrutinizing the acquisitions of Instagram and WhatsApp, as the court rejects Facebook's argument that the FTC lacks authority to seek injunctive relief against those purchases," he wrote.

Meanwhile, Amazon last week filed a petition with the FTC asking that the agency's new chairwoman, Lina Khan, recuse herself on Amazon antitrust matters, including its pending offer for film studio MGM, given her history of writings accusing Amazon of anticompetitive behavior.

"Given her long track record of detailed pronouncements about Amazon, and her repeated proclamations that Amazon has violated the antitrust laws, a reasonable observer would conclude that she no longer can consider the company's antitrust defenses with an open mind," the company wrote in its FTC petition.

New Street Research analyst Blair Levin wrote in a note that while Khan is likely to refile the case, "the simple reality is that while there is political and policy momentum for antitrust to be a more aggressive force in the economy, we don't see that trend as evident anywhere in the courts."

Levin says the MGM deal will be an early test of how the FTC will handle megatech M&A. He notes that recent precedent suggests the case would be treated similarly to the Amazon acquisition of Whole Foods in 2017.

"While Amazon might be seen as dominant in terms of the online retail market, Whole Foods was not considered to have any market power in the grocery product market and therefore the combination was not, under prevailing law on vertical mergers, seen as diminishing competition," he writes. "To us, the MGM deal looks similar to Whole Foods. But the concern about Amazon's reach have increased, and Ms. Khan's leadership of the FTC suggests that the institution may well take a different view." He says the FTC could argue that Amazon is so big it shouldn't be allowed to expand through mergers. But, he adds, "the odds in court favor the deal going through."

Write to Eric J. Savitz at eric.savitz@barrons.com

(END) Dow Jones Newswires

July 02, 2021 19:20 ET (23:20 GMT)

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