Can You Make Money From an Antitrust and Competition Investment Fund?
So here’s an idea. Let me know what you think: A hedge fund or other investment vehicle centered on antitrust analysis.
I’ll explain.
As you might know, I am an antitrust attorney. And I write a blog on antitrust and competition law. So, as you may expect, I follow antitrust developments somewhat obsessively at times. As a result, I have a good sense of the practical antitrust implications of certain cases, investigations, or prospective mergers.
I don’t have a crystal ball or anything. Nor do I have any inside information. And since human beings—judges or agency officials—make the relevant decisions, nobody can actually predict what will happen.
But by now, I can review a complaint or a motion to dismiss or description of facts and have a good sense of the strength and risk of the antitrust issues. I think I also have a decent idea how the major antitrust agencies—the FTC and Department of Justice—focus their priorities and like to resolve investigations, cases, and mergers. Like I said, I can’t predict anything with certainty, but there is a high learning curve for antitrust (probably more than most specialties) and I’ve spent a lot of time and effort climbing that curve.
Enough about me—for now anyway.
Let’s talk about antitrust and company stock performance. The obvious scenario is a merger. Two companies, perhaps competitors, announce a merger or acquisition. It isn’t a dead-on-antitrust-arrival merger between the first and second leading companies in a product and geographic market that is easily defined. Instead, it is the sort of merger where the markets are somewhat complicated, perhaps in flux, and it isn’t entirely clear whether an antitrust agency will challenge it or a court will stop it.
There is a lot of merger and acquisition arbitrage and analysis out there, where hedge funds and other investment funds try to predict whether the merger will go through. In fact, people from the investment world often call people from the antitrust world to try to understand what will likely happen.
Again, decisions are made by human beings, so predicting what will actually happen in any one case is impossible. But if you know antitrust quite well and follow the antitrust agencies closely, you can make an educated guess about what will happen. And since there is such a high learning curve to understand antitrust generally and because following antitrust developments takes a lot of time, there are relatively few people that can make the best guesses about what will happen. And most of them are busy litigating or working on antitrust matters rather than hanging out on Wall Street guessing about mergers.
The other point about antitrust and mergers is that the antitrust issues for a merger are material. In fact, they may be everything. So if you can make a better guess about what will happen in antitrust review of mergers than most people that are guessing, perhaps you have an advantage over the market.
This isn’t controversial or a surprise. Investment people constantly try to make money off mergers, so of course they will think to analyze the antitrust issues relating to a merger.
But what about antitrust lawsuits? Sure, when a case is filed against a would-be monopolist and the plaintiff asks for a trillion dollars trebled, the monopolist’s stock will probably suffer. But plaintiffs often ask for an inflated damage number that garners attention but doesn’t approximate likely damages.
If you are considering buying or selling the stock, do you read the complaint, the motions to dismiss, important discovery rulings? Maybe, but probably not. And if you do, you may not have the antitrust knowledge or background to understand how strong the case is and make a good guess at the likely resolution or the risk involved. So the market is probably not entirely efficient for the stock of a company involved in a serious antitrust lawsuit.
You can read the rest of this blog entry at the link below.