Tuesday, February 17, 2009
Should Bail Out Money Fund Large Mergers?
In a letter to U.S. Attorney General Eric Holder, the American Antitrust Institute urges federal regulators to take a hard look at the Pfizer-Wyeth merger. One ground for concern is typical. The two companies are said to have competitive overlaps in anti-depressant treatment drugs and animal health pharmaceutical products, including vaccines, parasite controls, and growth implants. If the merger goes forward, those who need these sorts of pharmaceutical products could face higher prices. But the solution would be a relatively straight-forward divestiture of one company's product line whenever an overlap exists.
The second, and more intriguing ground for AAI's opposition to the merger is that it is being funded in part by banks that received federal bail out money. A consortium of banks, including Goldman Sachs, JP Morgan Chase, Citigroup, and Bank of American are said to have committed $22.4 billion in debt toward the $68 billion transaction. According to the AAI report, these banks have received cash injections of $95 billion and another $345 billion in credit guarantees from the federal government. AAI argues that this federal assistance has enabled the banks to provide the marginal funding necessary for this transaction. That assistance, however, was intended to stimulate lending that would alleviate the credit crunch and thereby stimulate the economy. Funding the Pfizer-Wyeth merger, AAI contends, has the primary effect of handsomely rewarding shareholders, many of whom are extremely wealthy already, while providing little real economic stimulus. If committing so much debt to fund this merger crowds out loans that would otherwise go to build new plants, conduct research and development, maintain needed inventory, and the like, federal taxpayers could end up funding an investment windfall for shareholders rather than stimulating the economy.
Fittingly, a Wyeth spokesperson contacted about the AAI report replied, "The transaction is a compelling one for Wyeth shareholders that is in their best interests."