The Federal Trade Commission ("FTC") and U.S. Department of Justice Antitrust Division ("DOJ") recently introduced proposed revisions to the existing merger guidelines. The new draft guidelines, if enacted in a form similar to the current draft, would represent a seismic shift in how the agencies approach antitrust merger investigations. They expand the types of transactions expected to result in additional scrutiny and lower the threshold for market shares that may be considered problematic. Ultimately, the new guidelines are likely to lead to additional merger challenges.
While the merger guidelines do not have the force of law, courts have traditionally looked to the guidelines as persuasive authority. The marked change characterized by the new guidelines may limit their persuasiveness for courts, but companies should be aware of the significant shift in merger enforcement the draft guidelines represent.
DOJ and FTC have published draft new Merger Guidelines, reflecting the profound change in antitrust enforcement we have seen under the Biden administration. In this White Paper, we address important questions they raise, and at the end present a table with more details on key provisions.
WHAT ARE THE MERGER GUIDELINES? WHY ARE THEY IMPORTANT?
Since 1968, DOJ and FTC have issued and occasionally updated merger guidelines to help businesses understand the agencies' approach to merger enforcement and to provide agency staff and counsel with a framework within which to analyze mergers. The guidelines are not binding law, but courts have treated the guidelines as persuasive, largely because the guidelines, historically, reflected generally accepted legal theories and current economic thinking.
In July 2023, DOJ and FTC published a draft of new merger guidelines ("Draft Guidelines"). These Draft Guidelines would be the seventh iteration of the horizontal merger guidelines (not counting the separate non-horizontal merger guidelines and vertical merger guidelines), replacing the 2010 horizontal merger guidelines and the 2020 vertical merger guidelines. The Draft Guidelines are a significant departure from the current guidelines, recent case law, and modern economic principles, instead heavily relying on outdated legal precedents—largely drawn from the 1960s—an approach that reflects the Biden appointees' interpretation of what merger law should be, not necessarily what it is.
Once the guidelines are finalized, DOJ and FTC leadership will expect agency staff to approach merger investigations in accordance with them. The shift in approach already has been underway. The agencies' recent merger challenges make clear that agency leadership is pursuing the aggressive enforcement philosophy contemplated by the Draft Guidelines. Nevertheless, the agencies' recent litigation losses suggest courts will be reluctant to embrace such a radical shift in approach.
TO WHAT TYPES OF MERGERS DO THE GUIDELINES APPLY?
The merger guidelines apply to all mergers and acquisitions, including those large enough to require a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act"), nonreportable transactions, and even completed deals. In recent years, the agencies have used separate "horizontal merger guidelines" and "vertical merger guidelines," with the horizontal guidelines driving modern antitrust review. The Draft Guidelines cover all types of transactions, horizontal and vertical mergers, as well as so-called conglomerate mergers (more on those below).
WHY DID THE AGENCIES DECIDE TO REVISE THE GUIDELINES?
DOJ and FTC have criticized what they perceive as having been, for the last four decades, systemic underenforcement of the antitrust laws and overreliance on economic models in merger review, which they claim are divorced from market realities. They have said these failures have resulted in "many industries across the economy . . . becoming more concentrated and less competitive." The agencies announced in January 2022 their intention to "modernize" the merger guidelines to improve the agencies' ability to deter and challenge illegal mergers and acquisitions. Following four listening sessions and more than 5,000 comments, the agencies issued the Draft Guidelines to "reflect the realities of how firms do business in the modern economy."
WHAT ARE KEY TAKEAWAYS, THE MOST SIGNIFICANT CHANGES TO THE GUIDELINES?
The Draft Guidelines are part of an effort to fundamentally shift how the United States reviews mergers. The Draft Guidelines indicate that the agencies—at least in the current administration—will challenge deals using not only traditional theories of antitrust harm but also a laundry list of new (and some longdiscredited) theories of how deals may harm competition.
These are the most significant changes from prior guidelines:
Purpose of the Guidelines
The Draft Guidelines represent what current agency leadership believe the antitrust laws should be, rather than what the actual law is and what modern economic theory would support. Furthermore, while prior guidelines sought to provide guidance to businesses on what transactions likely would draw scrutiny and what information would be analyzed in that assessment, the Draft Guidelines focus on the current administration's priorities and appear to be intended to chill deal activity, corral agency staff, and push th e courts toward a more aggressive jurisprudence.
Move Away From Focus on Consumer Harm and Focus on Structure
Over the last 40 years, the accepted antitrust benchmark for evaluating a merger has been whether it harms consumers by increasing price. Recent progressive commentators and now current agency leadership have been hostile to this "consumer welfare standard." For the most part, the Draft Guidelines do not explain how the new theories protect against consumer harm, instead focusing on protecting competitors, relying on presumptions, and adopting a "know it when I see it" approach.
The Draft Guidelines rely heavily on structural presumptions related to market shares and concentration. Though long significant factors in merger review, the 2010 Guidelines required much higher market shares and greater concentration before presuming a merger unlawful. With lower thresholds, transactions that at one time would not have attracted scrutiny are more likely to face in-depth investigations.
Expanded Theories of Harm
Most modern antitrust enforcement has focused on deals involving competitors, so-called "horizontal" transactions. Although the Draft Guidelines certainly cover combinations between competitors, they spill bottles of ink on non-horizontal theories of harm and emphasize issues that historically were less worrisome in merger review. Each theory is discussed in the table at the end of this paper, including:
- Conglomerate or portfolio effects.
- Entrenching a "dominant position" or extending a dominant position to a new market.
- Mergers that bring control over access to a product, service, customers, or data that rivals use to compete.
- Mergers that continue a "trend toward concentration" and serial acquisitions (multiple acquisitions in the same space).
- Monopsony or buyer power, especially in labor markets.
- Any merger that "otherwise substantially lessens competition or tends to create a monopoly."
Lower Bar for Vertical and Potential Competition Cases
The agencies have, in the past, challenged vertical mergers and acquisitions involving potential competitors, but they have struggled to succeed, finding it difficult to show these transactions likely would harm competition. The Draft Guidelines try to lower the bar for blocking such deals. The Draft Guidelines presume vertical mergers to be illegal if either party has a 50% market share (contrary to AT&T/Time Warner, in which the court rejected the use of market share presumptions in vertical cases). For transactions between potential competitors, they propose a lower burden of proof by requiring only a showing that it was "reasonably likely" a party would enter but for the transaction and then presuming that entry would have had a market effect (shifting the burden away from the agencies, which is inconsistent with recent caselaw, e.g., Meta/Within).
Less Economic Analysis
The proposed guidelines reduce reliance on economic analysis, suggesting only that it "can be informative." No longer a foundation of the guidelines, econometric analysis is relegated to the Draft Guidelines' appendices.
WHAT KIND OF MERGERS WILL FACE INCREASED SCRUTINY UNDER THE DRAFT GUIDELINES?
The Draft Guidelines are so broad in scope that all but the most benign deals could be questioned. Horizontal transactions that may lead to high combined market shares will continue to face scrutiny, but the Draft Guidelines significantly lower the threshold for what the agencies consider "high market shares" and "undue concentration," reaching horizontal deals that in the past would have been considered unlikely to result in competitive harm. Perhaps the most significant changes apply to non-horizontal deals that traditionally would have faced little question, including conglomerate transactions and certain vertical transactions.
As a practical matter, we can expect agencies still to prioritize combinations presenting the greatest risk—due to the sheer volume of deals, agency resource limitations and other priorities (e.g., non-merger conduct and consumer protection investigations), court and political pushback, and potentially staff reluctance to pursue theories that are not grounded in economics and the law.
WILL THE NEW GUIDELINES AFFECT THE DEAL TIMING?
The Draft Guidelines do not contemplate changes to the HSR process. Thus, parties should not expect any significant changes to timing for deals that are investigated—a process that already averages almost a year for intense investigations. Timing, of course, will be affected for deals that in the past would have received little or no review but now may face fuller investigation.
The agencies recently proposed changes to the HSR rules that would dramatically expand the information required to be submitted in an HSR filing. We detailed those changes in our July 2023 White Paper, "DOJ/FTC Propose Massive Changes to HSR Premerger Filings: What You Need to Know." The proposed new filing form includes information requests designed to help DOJ and FTC identify and investigate new issues in the Draft Guidelines.
WHAT TYPES OF DOCUMENTS AND DATA WILL THE AGENCIES COLLECT UNDER THE NEW GUIDELINES? WILL REQUESTS BE MORE BURDENSOME?
The Draft Guidelines describe a variety of evidence the agencies may collect and the rationale for considering these materials:
Evidence From the Companies
The agencies may seek documents, testimony, and data from the merging parties. Evidence created in the normal course of business is typically considered more probative than evidence created after the company began anticipating a merger review. Predictions offered to allay competition concerns are given less weight.
Evidence From Customers, Workers, Industry Participants, and Observers
Information from these stakeholders can provide a variety of insights, ranging from information about purchasing behavior and choices to views about the effects of the merger. The agencies may consider the relationship between these stakeholders and the merging parties when evaluating this evidence; customer competition concerns have traditionally carried significant weight with the agencies. The Draft Guidelines call out information from "workers and representatives from labor organizations" about compensation and working conditions, reflecting the agencies' increasing focus on labor.
Econometric Analysis and Economic Modeling
The agencies still may consider econometric analysis of data and other types of economic modeling to evaluate the potential effects of a merger on competition, giving more weight to high-quality data and rigorous methodology.
Transaction Terms
The agencies claim the financial terms of the transaction can provide insights into the merger's impact on competition. For instance, the Draft Guidelines say a purchase price that exceeds the standalone market value of the acquired firm might (or in fact might not) indicate that the acquiring firm expects to benefit from reduced competition.
Market Effects in Consummated Mergers
If the merger already has closed, the agencies would treat as highly probative the fact of postmerger price increases or worsening competitive conditions. But the agencies also will consider the same types of evidence as they would for proposed mergers, even where no competitive harm is evident, under the supposition that a recently merged firm may moderate its conduct while anticipating a postmerger antitrust review.
Much of this is consistent with past practice, but now that the agencies are probing new theories of harm, they may request more expansive and detailed information from the parties and third-party industry participants, as they already have been doing recently.
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