The leaders of both agencies cited modern market “realities” necessitating the changes reflected in the draft guidelines.
On July 19, 2023, the Department of Justice and the Federal Trade Commission (FTC) jointly released draft Merger Guidelines to amend and update both the 2010 Horizontal Merger Guidelines and the Vertical Merger Guidelines that were issued in 2020 and later rescinded by the FTC in 2021.
- The draft guidelines, when finalized by the agencies, will not be law, but past merger guidelines have been persuasively cited by courts.
- The draft guidelines are the first to cite case precedents, but many of the cited cases are several decades old, and several recent merger challenge defeats suggest that the agencies and the courts may have different interpretations of existing law.
- Consistent with mandates from the Biden administration, the draft guidelines articulate a general aversion to mergers and consolidation. For example, contrary to prior guidelines and court interpretations that addressed the investigation’s inquiry into the overall probable effects of the acquisition, the draft guidelines shift the agencies’ enforcement focus to “risks” of adverse effects.
- Consistent with general removal of safety zones from longstanding agency enforcement policies and the agencies’ abandonment of the Hart-Scott-Rodino Act (HSR) early termination program, the draft guidelines remove references to the level and increase in concentration that typically do not raise concerns. The draft guidelines address bases on which the agencies might challenge transactions, not what types of transactions they view as noncontroversial.
- The draft guidelines lower the definition of what comprises a “highly concentrated” market and halves the concentration increase that might imply a basis for a presumption of adverse effects on competition where either (i) the merged firm’s market share exceeds 30 percent or (ii) an impacted market is highly concentrated.
- The draft guidelines focus on vertical relationships, including looking for mergers that create a firm that controls resources that its rivals may use to compete or market structures that foreclose competition. It suggests that the agencies would presume foreclosure and adverse effects on competition at or near a 50 percent market share, and would consider additional factors below that level.
- The draft guidelines target private equity and other industry roll-ups by suggesting that either a trend of consolidation or a pattern or strategy of growth through acquisition may cause the agencies to investigate the impact of the merger in accelerating the trend or the impact of the cumulative acquisition strategy, even though the language of Section 7 of the Clayton Act expressly addresses the effect of the acquisition.
- There is a clear focus on protecting workers of merging firms. In the past, synergies and efficiencies including reductions in labor costs might have supported a conclusion that a merger might result in benefits to consumers through lower prices in output markets. This is no more. The draft guidelines “directly address the potential for harm to all market participants and any dimension of competition, including for workers.” The agencies take the position that “labor markets are often relatively narrow” because “finding a job requires the worker and the employer to agree to the match,” and the “matching process often narrows the range of rivals competing for any given employee.” The recently released draft revisions to the HSR form would require detailed disclosures regarding employees in all HSR filings.
- The draft guidelines underscore recent enforcement efforts to rein in technology mergers. They target large platform providers, as well as mergers that might entrench or extend a dominant position (suggesting that a 30 percent share implies a dominant position). The draft guidelines focus on multisided platforms and competition between platforms, on the platform and to displace a platform. The agencies also specifically reference the use of algorithms and artificial intelligence in assessing potential post-merger coordination.
- The public will have the opportunity to comment on the draft Merger Guidelines for 60 days, until September 18, 2023, after which the agencies will consider the comments received, deliberate and finalize the new Merger Guidelines.
13 Core Guidelines
The draft guidelines depart from the agencies’ prior merger guidelines by setting forth 13 “Core Guidelines”:
- Mergers should not significantly increase concentration in highly concentrated markets.
- Mergers should not eliminate substantial competition between firms.
- Mergers should not increase the risk of coordination.
- Mergers should not eliminate a potential entrant in a concentrated market.
- Mergers should not substantially lessen competition by creating a firm that controls products or services that its rivals may use to compete.
- Vertical mergers should not create market structures that foreclose competition.
- Mergers should not entrench or extend a dominant position.
- Mergers should not further a trend toward concentration.
- When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series.
- When a merger involves a multisided platform, the agencies examine competition between platforms, on a platform or to displace a platform.
- When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers or other sellers.
- When an acquisition involves partial ownership or minority interests, the agencies examine its impact on competition.
- Mergers should not otherwise substantially lessen competition or tend to create a monopoly.
What Is the Impact?
The leaders of both agencies cited modern market “realities” necessitating the changes reflected in the draft guidelines. According to Attorney General Merrick B. Garland, “These updated Merger Guidelines respond to modern market realities and will enable the Justice Department to transparently and effectively protect the American people from the damage that anticompetitive mergers cause.” FTC Chair Lina M. Khan stated, “With these draft Merger Guidelines, we are updating our enforcement manual to reflect the realities of how firms do business in the modern economy. Informed by thousands of public comments—spanning healthcare workers, farmers, patient advocates, musicians and entrepreneurs—these guidelines contain critical updates while ensuring fidelity to the mandate Congress has given us and the legal precedent on the books.”
The Merger Guidelines are intended to provide guidance on how the agencies analyze mergers in determining which ones to challenge. Overall, the draft guidelines suggest various ways in which the agencies are intentionally becoming more aggressive in challenging mergers. They also suggest that the agencies recognize that their abrupt changes in enforcement policy have received mixed reception in the courts, as the draft guidelines seek to justify certain positions with citations to cases from a heightened era of anti-merger enforcement in the 1960s and 1970s. More friction between the agencies and the courts appears likely as the agencies seek to reshape the law through their enforcement efforts.
The draft guidelines, like prior merger guidelines, do not address remedies. Nevertheless, they articulate various ways in which the agencies will seek to establish a presumption of adverse effect on competition in contexts that might not have previously been seen as controversial. Coupled with a policy of turning away efforts to address concerns through consent decrees, they suggest that increased litigation is likely. All of that may mean longer deal timing limitations may be required.
“Unchecked consolidation threatens the free and fair markets upon which our economy is based,” said Attorney General Garland. Consistent with the proposed changes to HSR filings and the agencies’ stated policy of favoring challenge of transactions over consent decrees to address any issues of concern, parties considering a transaction should prepare for a comprehensive inquiry by the reviewing agency and to defend the transaction in litigation.
For More Information
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