Unraveling the Web: How Big Tech Uses SPACs to Skirt Antitrust Laws

In recent years, Big Tech companies have faced growing scrutiny over their market power and influence. Despite this, they continue to expand, often using creative strategies to bypass regulatory roadblocks. One such strategy involves the use of Special Purpose Acquisition Companies (SPACs), which have gained popularity as a faster and less scrutinized path to going public. In our paper “Unraveling the Web: Big Tech Directors, SPACs, and Antitrust Evasion Tactic” we explore how Big Tech firms exploit SPACs to evade antitrust laws and maintain monopolistic control, acquiring startups and technologies while avoiding the regulatory scrutiny that traditional mergers would entail.

Understanding SPACs and Their Appeal

A SPAC is essentially a shell company created to raise capital through an initial public offering (IPO) for the purpose of acquiring a privately held business (the "target"). These entities do not have specific business operations or acquisition targets when they go public. The SPAC’s board has two years to find a target company to acquire; if they fail, they must return the raised capital to investors. This timeline creates an inherent pressure to finalize deals quickly. Our research indicates a significant increase in SPAC formations since 2020, followed by a decline after 2022, possibly due to a growing number of unsuccessful deSPAC transactions (when a SPAC merges with a target company to bring it public). 

Exploiting Regulatory Loopholes

Typically, mergers between large companies in the US are subject to antitrust review under the Hart-Scott-Rodino (HSR) Act, which requires federal regulators, such as the Department of Justice (DOJ) or the Federal Trade Commission (FTC), to assess whether the merger would substantially lessen competition. However, in the case of SPAC transactions, the HSR review occurs between the SPAC and the target company, not the investors behind the SPAC. This oversight allows Big Tech firms to invest in SPACs and acquire influence over target companies through board seats or voting rights, without triggering the regulatory red flags that a direct merger would.

We found that Big Tech companies are willing to pay a premium for SPACs because of these regulatory advantages. The average Private Investment in Public Equity (PIPE) ratio to valuation on the eve of a deSPAC transaction shows a 12.6% premium, indicating that Big Tech sees substantial value in avoiding antitrust scrutiny. However, this premium quickly evaporates; the stock prices of these companies often fall post-deSPAC, with an average transaction price reflecting a 6.2% discount immediately after the deal. This rapid decline suggests that the market does not value the companies as highly as the PIPE premium would imply, but Big Tech gains other benefits, such as technological access and competitive advantages.

The Case of Comcast and BuzzFeed

To illustrate these dynamics, we examine the deSPAC transaction involving Comcast and BuzzFeed. Comcast, through its subsidiary NBCUniversal, was a significant investor in BuzzFeed, investing between $200 and $400 million. Additionally, the SPAC responsible for taking BuzzFeed public, 890 5th Avenue Partners, had board members with close ties to both NBCUniversal and BuzzFeed. This overlap created potential conflicts of interest, yet the HSR review for the transaction only assessed the SPAC and BuzzFeed, excluding Comcast's involvement entirely. Had Comcast sought to merge with BuzzFeed directly, the deal would likely have triggered a more comprehensive antitrust review.

Following the deSPAC, 98.2% of SPAC shareholders voted in favor of the transaction. However, the real motivation behind this overwhelming support became evident shortly afterward, as 94.4% of the shares were redeemed. The high redemption rate suggests that shareholders did not believe in the merger's value, instead opting to take their money back. BuzzFeed’s subsequent market performance confirmed this skepticism, with its market capitalization dropping by over 90%.

The Role of Interlocking Directorates

Our research delves deeper into the influence Big Tech companies wield over SPACs by mapping out networks of interlocking directorates—situations where the same individuals serve on the boards of multiple companies. We found that directors often have connections through shared educational backgrounds, previous employment, or other board memberships, creating a dense web of relationships across different companies. This network extends beyond individual SPAC-target relationships and includes what we term "sister SPACs," where the same Big Tech firm has invested in multiple SPACs that operate in related industries.

A case in point is Google’s investments in various SPACs, where interconnected directors were frequently found. Such interlocks pose significant risks, as they create conflicts of interest that could influence corporate decision-making in ways that favor the interests of Big Tech over competitive market dynamics.

Implications and Policy Recommendations

Our findings underscore the need for regulatory reform to address these emerging antitrust evasion tactics. The current legal framework, largely based on century-old legislation, is ill-equipped to handle the complexities of modern corporate structures, particularly in the tech sector. Policymakers should consider updating antitrust laws to scrutinize SPAC transactions more thoroughly, especially when large, influential investors are involved.

Additionally, transparency requirements could be strengthened to ensure that investors and regulators have a clearer view of interlocking directorates and potential conflicts of interest. Introducing more stringent HSR review criteria for SPAC transactions that involve significant investments from dominant industry players would be another step toward leveling the competitive playing field.

Big Tech’s use of SPACs represents a sophisticated strategy to extend their market dominance under the radar of antitrust regulators. By exploiting SPACs, these companies gain access to technologies and eliminate competition without the regulatory scrutiny typically associated with mergers. Addressing this issue is crucial for maintaining a fair and competitive marketplace, as well as for protecting the innovation ecosystem that drives technological progress.

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By Anat Alon-Beck (Case Western Reserve University), John Livingstone (Case Western Reserve University), Moran Ofir (Reichman University), and Miriam Schwartz-Ziv (Hebrew University of Jerusalem)

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