Ronald Orol, Senior Editor

Activists Push Regulatory, Geopolitical Boundaries for Tie-Ups

Elliott’s push for a DirecTV-Dish Network combination is just the latest example of activists agitating for blockbuster deals that often aren’t approved due to antitrust or geopolitical issues.

By Ronald Orol

Updated on September 20, 2019, 05:14 PM ET

Activist investor Elliott Management Corp. reportedly believes that a combination of AT&T Inc.’s (T) DirecTV and the Dish Network Corp. (DISH) can be approved in today’s regulatory environment.

If so, it would be the latest example of an insurgent fund manager agitating for blockbuster deals that push the envelope on what can be approved by antitrust regulators in Washington. In other situations, insurgent investors have interjected themselves into mergers that become ensnared in U.S.-China trade negotiations.

“Many anti-trust-sensitive mergers were driven by activist hedge funds,” said one activist defense attorney.

The Wall Street Journal reported on Sept. 18 that AT&T was exploring ways to divest DirecTV. However, CNBC on Sept. 19 reported that, in fact, the communications giant is not focused on selling the pay-TV unit. The CNBC item cited sources noting that Elliott Management is pushing for a divestiture or sale of DirecTV and that the activist fund believes that a Dish-DirecTV merger can get done in today’s regulatory environment. Elliott did not return a request for comment.

Elliott has suggested that DirecTV and other large assets of the Dallas, telecom giant should be considered for divestment. The fund suggested that it was possible that DirecTV may not have a clear strategic rational for being part of AT&T.

Even so, a push to combine DirecTV and Dish could raise clear regulatory issues. AT&T is well aware of them. On Sept. 11, AT&T CFO John Stephens pointed out that a combination of DirecTV-Dish has been “tried from a regulatory perspective” and “hasn’t been successful.” In 2002 federal regulators stopped a combination of the businesses. 

He added that, “I don't know that there's any change in that regulatory perspective, so, I would suggest to you we'd rather focus on the business than focus on regulatory process and approvals.” A combination could raise the ire of antitrust regulators in Washington at a time when state and federal policymakers appear particularly concerned about too much consolidation in the media and communications industry, he noted

Even so, activists often seek to push for deals that ultimately end up entangled in a regulatory morass – many of which are ultimately blocked by regulatory agencies. Last year, Starboard Value LP called off a proxy fight at title insurer Stewart Information Services after rival Fidelity National Financial Inc (FNF) agreed to acquire it for $1.2 billion. The same month Starboard liquidated its 10% stake. In September, the title insurers canceled their merger after the Federal Trade Commission said it would block the deal on antitrust grounds.

In 2015, Starboard campaigned to drive a combination of office supply chains Staples and Office Depot, which was later challenged by the FTC and ultimately blocked by a judge.

Activists often get involved in driving deals that ultimately face complex cross-border issues. One wonders what will happen to Nvidia Corp.’s (NVDA) $125 a share deal to buy Starboard-target Mellanox Technologies Ltd. (MLNX).

The activist fund liquidated its position in Mellanox shortly after that transaction was announced in March, but no deal has been consummated and the target’s share price has been drifting down – trading recently at $113 a share – over concerns about whether China will approve the deal as the two countries negotiate on trade.

David A. Katz, partner at Wachtell, Lipton, Rosen & Katz in New York argues that if an activist is going to push for a transaction that has having significant antitrust, national security or financing closing risks, "you would think they should be required to hold their shares through the closing of the transaction.” He added that if they aren't willing to keep the stock until closing, then their views should be given less weight. 

"By selling after the deal announcement and before closing, they have a different risk profile than the other shareholders, and if the transaction fails, the company is damaged but they are long gone," he said. 

Activists often get involved in existing deals that are later unwound. Recently, Elliott Management pushed Qualcomm Inc. (QCOM) to increase the amount it was willing to pay to buy NXP Semiconductors NV (NXPI).

However, that deal was never consummated – in July 2018 Qualcomm terminated the acquisition, after waiting almost 21 months in hopes of winning the Chinese government’s regulatory approval.

In late 2014, after Halliburton Co. (HAL) announced it was seeking to acquire Baker Hughes Inc. (BHI) in a blockbuster $35 billion deal. Activist investor ValueAct Capital Partners LP bought significant minority stakes in both companies and agitated for the transaction to be consummated. However, the merger was called off after the Justice Department filed a civil antitrust lawsuit in the U.S. District Court in Delaware seeking to block the merger.