Why pick these tech stocks: Investing pros

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Shared February 12, 2020

CNBC's "Power Lunch" team breaks down the record rally with Jim Paulsen of Leuthold Group and Chris Konstantinos of Riverfront Investment Group.

The Federal Trade Commission announced Tuesday it will examine prior acquisitions by Alphabet, Amazon, Apple, Facebook and Microsoft. The commission voted 5-0 to issue special orders to review the past mergers.

The FTC will require the companies to provide information on acquisitions not previously reported to the antitrust agencies under the Hart-Scott-Rodino Act and consummated between Jan. 1, 2010 and Dec. 31, 2019, according to a press release.

Companies are regularly required to submit merger and acquisition proposals that exceed a certain size for review by the FTC and Department of Justice, usually when a deal is valued at more than $90 million, according to the FTC website, though there are some exceptions and the threshold has changed over the years. That means the special orders will be directed at smaller acquisitions and acqui-hires that might have been made quietly, rather than blockbuster deals like Facebook’s acquisitions of Instagram and WhatsApp that were formally reviewed by the antitrust agencies.

The special orders suggest that the FTC is honing in on the question of how Big Tech companies use acquisitions to amass power and how the data from acquired companies are used, though the review is distinct from law enforcement probes by the agency, like its investigation into Facebook.

The FTC will likely examine discreet deals like those by Apple. CEO Tim Cook has previously told CNBC it acquires a company every two to three weeks on average, but it doesn’t announce the deals because the company is “primarily looking for talent and intellectual property.”

Apple’s Big Tech peers regularly make small acquisitions as well.

Line between research and enforcement

The effort is being led by the FTC’s Office of Policy Planning under authority granted by Section 6(b) of the FTC Act, which allows the agency to conduct wide-ranging studies without the purpose of law enforcement.

On a call with reporters, FTC Chairman Joe Simons told reporters the study is mainly a way to see what they might have learned from acquisitions that tech firms were not required to disclose to the antitrust agencies.

“We want to at least be aware what we were missing,” Simons said. Moving forward, the FTC could decide to change the HSR rules to make more mergers reportable to the agency or adjust its reporting requirements under its 6(b) authority, which would not require a change to the HSR rules.

The review “definitely could inform enforcement,” Simons said. “If during this study we see that there are transactions that turn out were problematic, all of our options are on the table.” Simons added that possible enforcement actions could include unwinding past mergers, ordering companies to create and divest a separate business organization or imposing behavioral remedies.

Because of the unique authority granted to the FTC, Office of Policy Planning Director Bilal Sayyed said on a call with reporters that it would not be able to share information collected for the review with other agencies like the Department of Justice unless it resulted in an enforcement case.

“We’re going to be very careful to maintain that line” between the review and law enforcement investigations, Sayyed said, adding that he does not want the FTC to be perceived as using its unique authority to overreach.

In addition to providing information that would typically be required for HSR disclosures, the FTC is ordering the companies to disclose “information and documents on their corporate acquisition strategies, voting and board appointment agreements, agreements to hire key personnel from other companies, and post-employment covenants not to compete.”

The orders also ask companies to share information about “how acquired assets were integrated and how acquired data has been treated.”

FTC Commissioner Rohit Chopra shared on Twitter his reasoning in voting for the review.

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