Wall Street expects Trump to open the merger floodgates

There are many unknowns around President-elect Donald Trump’s next term, but one thing is certain: Wall Street is frothing for his administration to open the merger floodgates.

The expected firing of both FTC chair Lina Khan and DOJ antitrust chief Jonathan Kanter is fueling the excitement. Both Biden admin appointees have led their respective agencies to historic levels of merger challenges, accusing industries including Big Tech, Big Grocery, Big Aviation, and Big Mattress of anticompetitive behavior. Many analysts are expecting Trump, who’s pledged to roll back a “regulatory onslaught” by the federal government, to significantly rein in antitrust enforcement.

Since Trump’s victory last week, shares of ready-to-consolidate companies have surged, with dealmakers expecting a rush of M&A activity and industry consolidation to follow his inauguration. Goldman Sachs analysts expect merger moves to jump 20% in Trump’s first year in office, making up for a 15% drop this year.

Capital One, which announced plans to scoop up Discover for $35 billion back in February, is up about 12% since the day before the election. Discover is up 15% in the same time. Together, the companies would create the country’s biggest credit-card issuer. Critics have said the combined company would have tremendous market power, holding nearly a third of consumers with low credit scores, and could hike interchange fees on small businesses.

There are also grocery giants Kroger and Albertsons, which together have spent more than a billion dollars over two years trying to get their $24.6 billion merger past the FTC. The combined $200 billion grocer would have 5,000 US stores and 720,000 employees, and regulators have warned it could suppress supermarket wages and create localized monopolies. Kroger reached a 52-week high on November 11.

Other merger-purgatory companies that’ve seen a Trump boost to their shares: Frontier and Spirit (the airlines restarted their on-again, off-again merger talks last month), Humana (its discussions with Cigna have reportedly revived), and UnitedHealth (the DOJ opted to delay making a decision on its deal to acquire home health company Amedisys until after the election).

Executives have expressed consolidation optimism, too. On an earnings call last week, Warner Bros. Discovery CEO David Zaslav said the incoming Trump admin could offer “an opportunity for consolidation… that would provide a real positive and accelerated impact on this industry.” Counter to Zaslav’s optimism however, many Hollywood writers, showrunners, and executives told Sherwood News that excessive entertainment-industry consolidation (Hollywood saw $400 billion in megamergers between 2009 and 2020) has created a massive labor contraction in film and TV.

This week, the president of the widely reviled Live Nation said he’s “hopeful” that the company will “see a return to the more traditional antitrust approach” under Trump. Biden’s DOJ proposed breaking up Live Nation and Ticketmaster in its May lawsuit, but Live Nation’s stock and hopes for a dismissal have risen postelection. 

There are some signs that investors and execs could be a bit overly optimistic and that the next Trump term may not be friendly to mergers across the board. While megamergers like Disney’s $71 billion purchase of Fox and the $69 billion merger of CVS and Aetna occurred under Trump’s first admin, others were fought. Both the DOJ’s antitrust case against Google’s search business and the FTC’s monopoly case against Meta began under Trump’s first admin (although the FTC refiled a tougher version under Khan in 2021). The President-elect has repeatedly said he’ll block Nippon Steel’s $14 billion acquisition of US Steel. 

“I’d say it’s probably going to be pretty similar, where they’re going to let a bunch of big mergers fly through and then pick a couple of politically salient fights, things that would kind of please the conservative base,” said Pat Garofalo, director of state and local policy at the American Economic Liberties Project and author of The Billionaire Boondoggle.

According to Garofalo, antitrust enforcers at the state level were reinvigorated under the Biden admin. With many still in power, they could continue high-profile cases against mergers without the federal government’s support or involvement. The FTC is joined by nine states in its suit to block the Kroger-Albertsons merger, and 17 states in its antitrust fight with Amazon. Thirty-eight states joined the DOJ in its antitrust lawsuit against Google. State-level resistance, Garofalo says, is easier to predict than the second Trump admin’s antitrust strategy.

“There, I’m more confident in saying yes, I think they will step in and say, ‘Not on my watch,’” Garofalo said. “The politics of it work for them on kind of two levels, right? They’ve already been leaning into this and reaping political benefits, and now there’s the added element of, ‘We are resisting Trump.’”

If Wall Street is right, and the M&A boom is allowed to rev up again under Trump’s second administration, Garofalo believes we already know the outcome.

“There’s very good evidence that as local areas get more concentrated, wages go down and prices go up, right? It doesn’t take physicists to figure out that that’s what would happen,” he said. “All the evidence shows that those sorts of things lower wages, raise prices, and in the case of healthcare, create worse health outcomes for everyone.”