US senators press antitrust enforcers over Rocket-Redfin deal

A group of U.S. Senators, including Elizabeth Warren and Cory Booker, have pressed the DOJ and FTC to explain their decision not to block Rocket Companies' $1.75 billion acquisition of Redfin, citing concerns that the deal, along with Rocket's planned $9.4 billion acquisition of Mr. Cooper, could reduce choice and raise prices for homebuyers by creating a vertically integrated conglomerate. The senators argue that the Redfin acquisition could allow Rocket to steer homebuyers towards its services and leverage user data to increase mortgage rates, further exacerbating affordability issues in an already inflated housing market.

Analysis

A group of U.S. Senators, including Elizabeth Warren and Cory Booker, has formally questioned federal antitrust enforcers—the Department of Justice (DOJ) and Federal Trade Commission (FTC)—regarding their lack of challenge to Rocket Companies' (RKT.N) proposed $1.75 billion acquisition of real estate listing platform Redfin (RDFN.O). The senators express significant concern that this deal, compounded by Rocket's separate plan to acquire mortgage servicer Mr. Cooper (COOP.O) for $9.4 billion, could lead to a "massive, vertically integrated conglomerate." This integration, involving the second-largest mortgage originator (Rocket), the largest mortgage servicer (if the Mr. Cooper deal proceeds), and the third-most-visited real estate brokerage website (Redfin), is feared to reduce consumer choice and increase costs in the housing market, which has already seen average home prices rise over 50% since 2019. Specific allegations include the potential for Rocket to steer Redfin users towards its proprietary mortgage and real estate agent services and to leverage user data to inflate mortgage rates. While DOJ antitrust head Gail Slater and FTC Chairman Andrew Ferguson have indicated they will not impede lawful mergers, they maintain a commitment to scrutinize deals for anticompetitive effects, amidst a backdrop where the rate for 30-year fixed-rate mortgages was 6.89% last week. Redfin shareholders are imminently scheduled to vote on the acquisition, a decision point shadowed by this heightened regulatory scrutiny.

Key Decisions for Investors

• Investors in Rocket Companies (RKT) should closely monitor communications from the DOJ and FTC, as a formal investigation or challenge to the Redfin or Mr. Cooper acquisitions could significantly impede Rocket's expansion strategy and negatively impact its valuation, consistent with the current negative sentiment for the stock.
• Redfin (RDFN) shareholders face an imminent vote on the $1.75 billion acquisition; they must weigh the certainty of the offer price against the potential risks of the deal being blocked or altered due to the highlighted regulatory pressure.
• The heightened political and regulatory scrutiny underscored by the senators' letter signals increased M&A risk for large-scale vertical integrations in the U.S. housing and mortgage industries, potentially affecting future deal-making and valuations across the sector.
• Given the senators' specific concerns about Rocket leveraging Redfin for anti-competitive practices, investors should consider the potential for operational restrictions or increased compliance burdens on Rocket, even if the acquisitions ultimately proceed.