The U.S. Department of Justice (DoJ) and the Federal Trade Commission (FTC) released draft merger guidelines for public comment (Guidelines) on July 19, 2023. The Guidelines significantly expand the scope of transactions that are likely to be scrutinized by the agencies and signal the agencies’ intention to continue the recent shift to aggressive merger enforcement in the United States.
Below are notable highlights from the Guidelines:
- Digital platforms and private equity are especially at the front of the agencies’ minds, although the Guidelines apply across the economy to all markets.
- The impact on competition of acquisitions by a dominant firm of potential (or perceived to be potential) or nascent competitors is a key focus.
- For the first time, the potential for harm to workers is a key focus. The impact on labor will be a standalone basis to challenge a transaction.
- A series of multiple small acquisitions in the same or related business lines by the same purchaser are also in the Guidelines’ crosshairs, even if one of the acquisitions on its own would not be.
- Acquisitions of partial ownership or minority interests are also a focus.
The Guidelines also push other traditional frontiers of merger enforcement:
- A firm can be regarded as “dominant” if it has a market share of 30% or more.
- A vertical merger involving foreclosure of a competitor’s access to over 50% of an input will be presumed unlawful.
- The concentration thresholds (HHI Index) have been lowered to make more mergers presumed unlawful under the Guidelines.
- The Guidelines apply to both horizontal and vertical mergers reflecting the agencies’ belief that many mergers do not fall neatly into one or other bucket.
The Guidelines were published alongside the White House Competition Council’s announcement of new actions to lower costs across the economy and to mark the second anniversary of President Biden’s landmark, “whole of government” Executive Order on Promoting Competition in the American Economy issued on July 9, 2021. The Council’s announcement emphasizes that “promoting competition to lower costs and support small businesses and entrepreneurs is a central part of Bidenomics” and that the Guidelines “seek to give the public, businesses, workers, and consumers clarity about how law enforcement agencies evaluate mergers under the antitrust laws on the books in the context of our modern economy.”
The Guidelines are subject to a 60-day comment period before their implementation.
What Are People Saying?
- The Guidelines reflect the changing economic conditions and the agencies’ attempt to modernize their enforcement tools to carry out Congress’ mandate. “With these draft Merger Guidelines, we are updating our enforcement manual to reflect the realities of how firms do business in the modern economy,” said FTC Chair Lina Khan. The head of DoJ’s Antitrust Division Jonathan Kanter made a similar statement stressing the importance of adapting “our law enforcement tools to keep pace” so they can “protect competition in a manner that reflects the intricacies of our modern economy.”
- Regarding the Guidelines’ implications for mergers in the digital platform sector, Financial Times reports a senior Biden Administration official to have said, the agencies would scrutinize an acquisition if it makes it “more difficult for consumers to…choose between different platforms” or if it “would enable a dominant firm to deprive rivals of scale or network effects.”
- Further commenting on the Guidelines, Financial Times cites a senior DoJ official who said the “guidelines are ‘business-model agnostic” while focusing on “scenarios that have become more common in our economy.” The focus on a series of acquisitions rather than an individual deal is reflective of a “more frequent trend” of private equity groups and the tech sector rolling up multiple small companies in a particular market.
- According to The New York Times, the Guidelines serve as “a road map for judges to understand the regulators’ more progressive views on trustbusting via footnotes about case law — an apparent rebuttal to those who say that the tougher approach is not grounded in U.S. rules.”
The Guidelines are the DoJ and FTC’s response to the Biden-Harris Administration’s call for action. They clearly demonstrate the inter-relationship of the core political and economic objectives of the Administration and the DoJ and FTC’s approach to mergers, and they need to be seen in that context.
The Guidelines show every sign of the agencies’ intent to continue their current march along an anti-merger, interventionist road, thereby increasing the burdens and risks on merging parties and lengthening the review timelines. The proposed changes to the Hart-Scott-Rodino (HSR) filing requirements published a few weeks before the Guidelines had already generated concerns among companies about increased filing requirements and potential delays to review timelines.
The Guidelines also signal the agencies’ continued willingness to push at traditional frontiers even if they ultimately lose in court. Somewhat paradoxically given their stated forward-looking mission, the Guidelines cite heavily to existing, often years old, judgments—in an effort to legitimize themselves and give guidance to the judges who will rule on the merger cases that go to trial. What the judges make of the new guidelines will be the ultimate test of their impact.
Looking globally, the Guidelines diverge from merger policy and practice in the EU and other non-U.S. jurisdictions in several key aspects of merger control. Different outcomes between the U.S. agencies and agencies elsewhere around the world reviewing the same merger may therefore become increasingly frequent unless those agencies follow suit.
Whether the Guidelines become “institutionalized” into U.S. merger enforcement for the longer term will depend on the judges who rule on the transactions that go to court and the outcome of the 2024 presidential election. For the moment, though, the direction of travel is clear.