After much anticipation, on July 18, 2023, the Federal Trade Commission and the Antitrust Division of the Department of Justice released their revised Draft Merger Guidelines. The revised guidelines were long anticipated with President Biden requesting the agencies update the guidelines in his Executive Order Promoting Competition released in July 2021 and the agencies issuing a request for information and conducting listening sessions with the promise of updated guidelines. When issued in final form, the Draft Merger Guidelines would be the singular source of the agencies’ approach to analyzing both horizontal and vertical mergers and acquisitions.
But, even once finalized, the Draft Merger Guidelines will not be legally binding; rather, they serve as guidance for courts and the public. The agencies aim to set forth guidance that will influence courts though and have included cites to case law favorable to their position to support their proposed analysis. The agencies are also hoping the draft guidelines influence merging parties and make them think twice about pursuing consolidation. The FTC under Chair Khan has said that “[t]oo many deals that should have died in the boardroom get proposed”. When announcing the proposed guidelines, both Chair Khan and Assistant Attorney General Kanter advocated that the draft guidelines reflect “changing market realities” and how antitrust analysis needs to evolve accordingly.
The Draft Merger Guidelines are in line with the aggressive enforcement agenda of the Biden Administration’s DOJ and FTC. The draft guidelines also reflect some key themes the agencies have highlighted in recent cases and advocacy, including concerns about concentration of markets, serial acquisitions, competition in labor markets, and practices by dominant firms that cement their position and harm competition.
- 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 multi-sided 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.
Under the proposed guidelines, a merger creating a merged firm with greater than 30% market share “presents an impermissible threat of undue concentration” which is a significantly lower standard than in previous merger guidelines and would shift the burden to companies. For vertical mergers, the agencies propose that a merger that forecloses 50% or more of a related market for a rival would presumptively substantially lessen competition.
Guideline 5 focuses on whether a merger may substantially lessen competition by giving one firm control over a product, service or customers that rivals use to compete. Not only is this a new focus for the agencies, but it is also an expansive one. For this guideline, the agencies would also consider cases where a related product or service was not currently used by rivals but could still be competitively significant.
In the Draft Merger Guidelines, the agencies also seek to prohibit mergers that “entrench or extend a dominant position” including by increasing switching costs, interfering with alternatives, or depriving rivals of scale economies or network effects, as well as eliminating nascent competitive threats.
Additionally, the agencies indicate that they would examine serial acquisitions, and affirmatively state that a pattern of acquisitions could violate Section 7 of the Clayton Act even if no merger on its own was illegal. The agencies’ analysis considers whether companies have a strategic approach to serial acquisitions and the cumulative impact on competition in cases where a party has engaged in a strategy of consolidation through acquisitions that may substantially lessen competition or tend to create a monopoly. This guideline seems to target the FTC’s issue with Meta’s prior acquisitions, for example, and private equity firms that make many, smaller acquisitions over time through a portfolio company.
Guideline 11 addresses labor markets, which has been a key focus for the FTC and DOJ under the Biden Administration. While the agencies have been addressing competition in labor markets through proposed rulemaking by the FTC prohibiting non-competes and litigation by the DOJ against non-solicitation and no-poach agreements among competitors, the draft guidelines set forth an independent analysis for labor markets in the merger context. The Draft Merger Guidelines also contain appendices where the agencies set forth their approach to market definition and assessing competition among other factors. The agencies propose some significant revisions to assessing market share and defining markets, which reflect concern they have raised about technology and labor markets. In one appendix, there is an entirely new section detailing how the agencies would define a market for labor in a merger context in terms of product and geographic definition. According to the Draft Merger Guidelines, “alternative job opportunities might include the same occupation with alternative employers, or alternative occupations.”
- The draft guidelines follow closely on proposed revisions to the form for premerger filings under the Hart-Scott-Rodino Act, which require significantly more information about a planned transaction. Together, the new HSR rules and guidelines could exponentially increase the time it takes for a transaction to gain regulatory approval.
- The FTC may be more successful in using these guidelines through its administrative process than the DOJ, which has to bring cases in federal court. Much of the case law that the agencies cite in the draft guidelines is decades old, and is of course favorable to the agencies. However, the agencies have suffered recent losses challenging mergers in court. These guidelines are not binding on courts, but prior case law is.
- Regardless, the draft guidelines may still have their desired effect. More risk adverse companies may hesitate or delay certain deals until they see how these guidelines are applied in real world cases.
The agencies welcome comments to the Draft Merger Guidelines. There is a 60-day period for comments that will close on September 18, 2023. Buchanan’s antitrust team is available to assist in navigating the Draft Merger Guidelines and changing regulatory landscape.