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Split Government Could Doom Antitrust Reform, but Tech to Remain in Crosshairs

A split government could hinder antitrust reform.
(WDCPhotographer)
(WDCPhotographer)
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Big Tech can breathe a sigh of relief, as the likely prospect of a divided government (Democrats controlling the presidency and House, but not the Senate) significantly reduces the chances of sweeping antitrust reforms, The Information reports.

But even under a Joe Biden administration, tech companies are expected to “remain firmly in the hair of antitrust enforcers.”

  • Both parties “have found common ground on the idea that big tech companies need to be reined in.”

Reed Hundt, who practiced antitrust law before serving as the chairman of the FCC under Bill Clinton, expects Biden to continue the Trump administration’s recently filed lawsuit against Google. Democrats could be even tougher on the internet giant partly because of Google’s failure to stop Russian hackers from influencing the 2016 election.

  • And if Trump sues Facebook for antitrust violations, which is widely expected, Hundt says Biden would maintain that prosecution as well.

“The breakup of Facebook is a real possibility” under a Biden administration, Hundt says, taking the form of a forced divestment of Instagram.

  • Breaking up a company is a hard thing to do, though. Microsoft was in a similar situation 20 years ago, and an appeals court overturned a decision by a federal judge to break up the company.

However, it’s unclear how big of changes Democrats can actually make without Senate control. House Antitrust Subcommittee chair David Cicilline (D) plans to introduce a series of bills to improve prosecutors’ chances in antitrust cases.

  • The odds of those bills becoming law are low, though. Even if the antagonistic nature of Big Tech could flip a few Republicans, the part as a whole has generally opposed changes to current legal standards.

The Big Picture: At the very least, Biden can be tougher on mergers and acquisitions, which doesn’t require a change to current law.

Justin Oh:

Why am I less concerned about a potential breakup of Facebook than I am antitrust actions against the Apple and Google deal? 

Facebook ($FB) is trading at a very reasonable valuation of 15x forward EBITDA. Second, a breakup is unlikely, as that’s a tough thing to do legally. Third, even if they break up Facebook and Instagram, both companies can still operate and partner, and their revenues don’t necessarily have to go away as separate entities.

ROIC members at acouplecents.com have noticed the recent change-ups to our favorite Compounder stocks on the Big Board. I admit that $GOOG is very juicy at 14x forward EBITDA. But until we get more clarity on the potential destruction of the Apple/Google deal, I don’t feel comfortable holding every single FAANG stock and am fine holding the ones we have on the Big Board.

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