Council Opposing State Commission Attempt to Limit California’s M&A Activity
A little-known state commission is set this week to adopt potential changes to important mergers and acquisitions rules that threaten to undermine California’s economic competitiveness, hurt its vaunted business startup system and chill valuable investment. The Bay Area Council is working to block the changes, which would put California at odds with existing federal standards.
Historically, the Golden State has relied on the federal Clayton Act and jurisprudence where M&A activity is illegal when it is “likely or probable” to lessen competition. The Commission has proposed a lower threshold for inappropriate transactions. California would now consider actions that may “substantially lessen competition” or “tend to create a monopoly.” As a result of the proposal, state enforcers would have more room to argue that certain mergers are inappropriate. Merging parties would be on their backfoot from the start and would have to fight uphill to show their merger is not likely to have uncompetitive effects.
More restrictive M&A rules pose a real threat to California’s innovation economy. Entrepreneurs often look to acquisition as their most likely path to a profitable exit. Going public, with its longer time horizon and more arduous compliance requirements, is simply not realistic for most startups. If California creates more barriers to acquisition, the cost-benefit tilts against entrepreneurship. The result? Less innovation, less competition, fewer consumer products and services, and the continued dominance of entrenched companies.
What happens procedurally if the Commission approves the proposed recommendations later this week? Past antitrust overhauls offer a glimpse into the future. At the beginning of the year, the agency recommended changes in another area of antitrust, single firm conduct. The suggestions were taken up by an eager Legislature and signed into law. Expect a similar process for future M&A suggestions, though a new Governor may prove less amenable to comprehensive changes. To engage in the Council’s innovation and business climate policy work, please contact Senior Vice President Peter Leroe-Munoz.
