CH21 - Antitrust Laws

The unexpected news of an M&A deal between AT&T and NCR had heated up the atmosphere in the room.

Landon, who had joined the Eldorado Fund after being convinced by Seok-won's proposal, had made it a priority to study the stock market. As they say, "You have to know the market to manage it," and understanding the fund is essential for managing it effectively.

Thanks to his studies, Landon immediately recognized the significance of an M&A, and with an excited look on his face, he rubbed his hands together.

"If things go as expected, NCR's stock price is going to skyrocket."

Seok-won grinned, nodding in agreement. "Given how eager AT&T is to make this deal happen, the acquisition premium will be quite high."

An acquisition premium is the amount the buying company adds on top of the market price to ensure the deal goes through.

Andrew, adjusting his glasses with a serious expression, asked, "How much of a premium do you think they'll pay?"

"With NCR's current stock price hovering around $50, they could fetch at least $100 per share."

"Doubling the price… If that happens, it'll be the biggest deal on Wall Street this year," Andrew remarked.

Landon, unable to contain his excitement, leaned forward in his seat. "In that case, we should start buying up as much stock as we can before the rumors spread."

Unlike in Korea, where acquiring shares from major shareholders is often enough to secure control, in the U.S., an M&A requires purchasing 100% of the shares at the same price, including those held by small shareholders.

So, if they bought shares at $50 and AT&T acquired NCR for $100, they'd pocket the difference as pure profit, effectively doubling their investment just by sitting still. It was no wonder Landon was eager.

In contrast, Andrew, with his wealth of experience, remained composed and cautious.

"It's definitely a tempting opportunity, but that's all the more reason to scrutinize the situation carefully."

"Are you worried the deal might fall through?" Seok-won asked.

Andrew nodded. "Exactly. If we accumulate shares and the M&A falls through, all our efforts will have been for nothing."

Seok-won readily acknowledged the risk. "And if it were to end there, we'd be lucky. There's also the possibility that disappointed investors might dump their shares, driving the stock price even lower than before."

Landon, who had just realized the risks, frowned and muttered, "That would be a disaster, especially if we leveraged our investment."

He turned to Seok-won and asked, "Are you planning to use significant leverage again this time?"

"To maximize returns, of course. I've already secured verbal agreement from Salomon Brothers for leverage up to $1 billion."

"Of course, I expected as much," Landon responded without surprise. Having witnessed Seok-won negotiate a 10x leverage deal with a major Wall Street investment bank for his short bet on the British pound, Landon was unfazed.

Andrew, his eyes gleaming with interest, said, "If you've already secured the leverage, it seems you're confident this M&A will go through."

"That's right," Seok-won replied calmly.

Seok-won's assured demeanor intrigued Andrew, who asked, "What gives you such confidence?"

"The biggest reason M&As fall apart is due to antitrust laws, as you probably know," Seok-won began.

Landon, with his legal expertise, nodded gravely. "That's true."

Antitrust laws are designed to prevent companies from gaining monopolistic control over a market, which could harm consumers.

"Given that AT&T has been a target of antitrust laws before, if any issues arise, they're likely to back out of the deal, no matter how eager they are."

Andrew's concern was valid. AT&T was a prime example of a company that had been broken up due to antitrust laws.

Originally starting as the Bell Telephone Company, AT&T had grown into a telecommunications giant that dominated the U.S. market through relentless acquisitions. However, after a seven-year legal battle, they lost the case and were forced to break up their local telephone operations into 22 separate companies.

"Having gone through such a harsh ordeal, they'll definitely be wary of getting entangled in antitrust issues again," Landon agreed, his expression serious.

Even Seok-won nodded in agreement, prompting Landon to furrow his brow.

"Doesn't that mean the risk is too great?"

Seeing Landon's worried expression, Seok-won leaned back in his chair and replied with a relaxed smile, "It would be if antitrust issues were a concern."

"…?"

"What did we say AT&T's interest in NCR was about?"

"It's to enter the promising computer industry… Ah!" Landon suddenly realized what Seok-won was implying.

"Antitrust laws are meant to prevent monopolies in a single industry, not to restrict entry into a new business."

"Exactly."

Seok-won smiled, watching Landon nod in understanding.

"So, this deal wouldn't fall under antitrust scrutiny."

"Indeed…"

Even Andrew, who had been trying to poke holes in Seok-won's argument, couldn't find anything to counter. He was impressed by how Seok-won, despite his youth, spoke with the wisdom of someone who had spent decades on Wall Street.

"You're right. AT&T isn't currently in the computer business, and while NCR is a notable player, they're only ranked fourth in the industry, so there's no reason for antitrust issues to arise."

Landon, too, looked at Seok-won with newfound respect. "I should have been the one to point that out, given my legal background. I'm a bit embarrassed."

"Don't worry about it. The important thing is that you now understand why I'm confident this M&A will succeed."

Andrew nodded immediately. "Of course. As soon as the funds are available, we'll start buying up shares."

"Be careful not to buy too much at once and drive up the stock price, or others might catch on," Seok-won advised.

Andrew grinned confidently. "That's what I do best, so don't worry. Leave it to me."

Judging by his confident expression, Seok-won felt reassured.

"Good. The funds will be deposited into the fund's account tomorrow."

The prospect of finally diving into a serious investment filled both men with anticipation. "I'm already feeling the itch," Andrew said, curling one side of his mouth into a smirk. Landon, too, nodded with a slightly flushed face, sharing in the excitement.

After a lengthy and in-depth discussion, Landon and Andrew finally left the CEO's office.

Now alone, Seok-won stood and walked over to the large window that occupied an entire wall.

The East River flowed calmly beneath him, and he watched as a ferry docked, allowing passengers to disembark.

As he gazed out at the scene, Seok-won recalled an incident with Manager Oh from the past.

----

"Hey there."

"Back again?"

"Geez, is that any way to talk to an important customer? Are you one of those Gen Xers or something? Even the new hires at our company talk back all the time, and there's nothing cute about it."

"Just hand me your shoes."

"Here you go."

Seok-won expertly removed the horseshoe-shaped heel protectors from the shoes Manager Oh handed him. Then, he sanded down the soles, applied adhesive, and attached new protectors.

Manager Oh, who had made himself at home and was now comfortably lounging in slippers, watched with interest.

"I just asked for a polish, though."

"The heel protectors have worn out since the last time I put them on, so I'm doing this as a free service."

The shoes were a gift from Manager Oh's late father, and he cherished them dearly. Manager Oh, knowing that Seok-won was taking special care, couldn't help but smile.

"Well, aren't you something? Our Gwang-seop is all grown up, giving me extra service and all."

"…"

"Thanks."

The quiet expression of gratitude made Seok-won feel awkward, and he shrugged it off, pretending it was nothing.

"It'll take about 30 minutes. Is that okay?"

"Sure."

Manager Oh checked his watch and nodded.

"Should I continue the story I was telling you last time?"

"Yes, please," Seok-won replied, eager to hear more.

Manager Oh, following his usual habit, pulled out a cigarette and lit it, taking a moment to recall where he'd left off.

"I think I mentioned that M&As often fail more than they succeed, right?"

"Yes."

Taking a drag from his cigarette, Manager Oh continued, "One of the worst M&As ever was when AT&T acquired NCR."

Confused, Seok-won tilted his head. "But didn't you say it was one of the biggest deals of the year?"

"That's right. It was a mega-deal, with the acquisition price exceeding $7.4 billion."

As he exhaled a cloud of smoke, Manager Oh elaborated, "Even today, that's a jaw-droppingly huge amount. Imagine what it must have been like ten years ago. I don't need to spell it out for you."

$7.4 billion.

Seok-won, feeling a vague sense of awe, tilted his head.

"But why is it considered a failed M&A?"

"AT&T bet big on acquiring NCR to diversify beyond their traditional telecommunications business and enter the then-hot computer industry, remember?"

"Yes."

"But contrary to expectations, the synergies never materialized. Instead, NCR became a headache, racking up over $2.4 billion in losses over the years."

"Oh… That's terrible."

"They tried to turn things around, but when nothing worked, they spun off NCR and exited the computer business altogether."

"Losing billions on the NCR acquisition makes it easy to see why it's considered one of the worst M&As," Seok-won agreed.

Seeing Seok-won nodding in understanding, Manager Oh asked with a mischievous grin, "But there's another reason why it's called the worst M&A. Can you guess what it is?"

"I have no idea. What is it?"

"Tsk. You could at least pretend to think about it."

"You're going to tell me anyway, so why drag it out…"

"Ugh, you're no fun."

Manager Oh took another drag from his cigarette before revealing the answer.

"AT&T dumped NCR in 1995, just as the dot-com bubble was beginning to form. What business was NCR in again?"

"Oh… Ah! Computers."

"Exactly. If they'd held on just a little longer, they would have reaped the massive rewards of the internet and computer industry boom during the dot-com bubble. Instead, they lost money and missed out on the opportunity right under their noses. That's why it's such a painful chapter for AT&T."

The dot-com bubble was a time when just adding ".com" to a company's name could send its stock price soaring. The stock market was engulfed in a frenzy of speculation and hysteria.

Seok-won couldn't hide his shock.

"The dot-com bubble was driven by the mass adoption of computers and the internet. So, AT&T's vision of the future was spot-on. Wow!"

A shiver ran down Seok-won's spine as he rubbed his arms.

"Man, that's really chilling."

"That's why timing is everything in life," Manager Oh said, leaning back in his chair with a self-satisfied grin.

"No matter how accurate your predictions are, if you miss the timing by even a hair, you end up as a failure with the label of the worst M&A. So, always think carefully and be cautious when making decisions. Don't forget this."

"Yes, sir."

----

Back in the present, Seok-won opened his eyes to the stunning view of the East River.

"That advice was incredibly helpful when I started investing in stocks."

The AT&T-NCR deal had left a lasting impression on his mind.

"When I saw NCR still listed on the stock exchange in the Wall Street Journal, I was shocked."

After all, the stock should have been delisted a year ago after AT&T's acquisition.

"Maybe this is another butterfly effect from me coming back to the past."

In any case, Seok-won, with his clear memory of the past, quickly recognized this as another opportunity.

He had immediately hired a private investigator to monitor the movements of the two companies' executives, which led to the discovery of the photos showing a secret meeting between AT&T Chairman Robert Meyer and NCR Chairman Hillshu.

"If there's a gold nugget lying on the ground, only a fool wouldn't pick it up."

Moreover, this was the perfect investment opportunity to make a splash on Wall Street and establish the Eldorado Fund's presence.

"This investment will be a good test to see what Andrew is capable of."

TL/n - 

Antitrust laws are rules that help keep businesses playing fair. Imagine a big playground where all the kids (businesses) are supposed to share toys (customers) and play nicely. Antitrust laws make sure no one kid (business) hogs all the toys or bullies others to get more toys.

Here are the main points:

No Monopolies: A monopoly is when one company controls an entire market, like if one kid had all the toys and didn't let anyone else play. Antitrust laws stop this from happening so that everyone has a chance to play.

Fair Competition: These laws make sure companies compete fairly. It's like making sure no one cheats in a game. If companies cheat by making secret deals to keep prices high or to push others out of the market, they get in trouble.

Mergers and Acquisitions: When two companies want to join together, it's like two kids deciding to share their toys. But if this means they will have too many toys and can control the playground, the laws might stop them to keep things fair for everyone else.

In short, antitrust laws are there to make sure businesses compete fairly, which helps keep prices reasonable and gives consumers more choices.

***

Antitrust laws, also known as competition laws, are regulations designed to promote fair competition and prevent monopolistic practices.

Here are the key components:

Sherman Act (1890): This foundational law prohibits contracts, combinations, or conspiracies that restrain trade and outlaws monopolization or attempts to monopolize1. Violations can lead to severe penalties, including hefty fines and imprisonment.

Federal Trade Commission Act (1914): This act established the Federal Trade Commission (FTC) and bans unfair methods of competition and deceptive practices1. The FTC can enforce actions against activities that violate the Sherman Act.

Clayton Act (1914): This act addresses specific practices not covered by the Sherman Act, such as price discrimination, exclusive dealing agreements, and mergers and acquisitions that may substantially lessen competition.

These laws aim to ensure that businesses compete fairly, benefiting consumers with lower prices, higher quality products, and more choices.

***

The AT&T antitrust case is a landmark example of antitrust law in action.

Here's a simplified explanation =>

Background

AT&T, also known as the Bell System, was a massive telecommunications company that had a monopoly over telephone services in the United States for much of the 20th century. This meant they controlled almost all local and long-distance telephone services, as well as the equipment used for these services.

The Case

In 1974, the U.S. Department of Justice filed an antitrust lawsuit against AT&T, arguing that their monopoly was stifling competition and innovation. The case was based on the Sherman Antitrust Act, which aims to prevent monopolies and promote fair competition.

The Outcome

In 1982, a settlement was reached, leading to the breakup of AT&T into several smaller companies, known as the "Baby Bells". This breakup took effect in 1984 and aimed to foster competition in the telecommunications industry.

Impact

The breakup of AT&T is considered one of the most significant antitrust actions in U.S. history. It opened up the telecommunications market to competition, leading to more choices and better services for consumers.