Field Of Dreams: FTC And DOJ Seek To Build A New Playing Field For Challenging Mergers

• Published date: 25 July 2023
• Subject Matter: orporate/Commercial Law, Antitrust/Competition Law, M&A/Private Equity, Antitrust, EU Competition
• Law Firm: Shearman & Sterling LLP
• Author: Mr David Higbee, Jessica Delbaum, Ben Gris, Djordje Petkoski, Michael Mitchell, Jonathan Cheng and Ryan Leske

Proposed FTC and DOJ Merger Guidelines Formalize Biden Administration's Aggressive Vision for Merger Enforcement - Top Ten Takeaways

When losing, some players seek to change the rules. Others seek to change the playing field. On July 19, 2023, the U.S. Department of Justice and the Federal Trade Commission (collectively, the "Agencies") released much-anticipated proposed Merger Guidelines (the "Proposed Guidelines"),¹ which, once finalized, will replace the Agencies' 2010 Horizontal Merger Guidelines and the previously withdrawn 2020 Vertical Merger Guidelines. While prior merger guidelines generally represented consensus among lawyers and economists across administrations, the aggressive approach taken in the Proposed Guidelines risks undermining the credibility and persuasiveness of the guidelines as a tool for merging parties and judges.

The stated purpose of the Proposed Guidelines remains the same as their predecessors: to explain to antitrust practitioners and to judges how the Agencies will identify mergers that they allege violate the antitrust laws. However, the Proposed Guidelines include dramatic revisions that make it more likely that the Agencies will conclude that a much larger set of mergers harm competition and, if adopted by courts reviewing merger challenges by the Agencies, would significantly alter the M&A landscape.

The release of the Proposed Guidelines solidifies a stark transition towards an attempt for more aggressive merger enforcement by the Agencies that merging parties and antitrust practitioners have observed for several years. Despite purporting to reflect longstanding binding propositions of the law² and developments in market realities,³ the Proposed Guidelines may be best understood as a formalizing of the Biden Administration's Neo-Brandeisian⁴ antitrust analytical framework. While the Agencies will ultimately bear the burden of proving in merger litigations that courts should adopt the Proposed Guidelines, parties engaging in mergers or acquisitions, in particular those that are not prepared to litigate against the Agencies, will need to be mindful of the expanded factors under the Proposed Guidelines that the Agencies will use in analyzing transactions to determine if they purport to violate the federal antitrust laws. However, recent losses suffered by the FTC and DOJ in multiple merger enforcement actions attempting to push similar themes in court beg the question as to the likelihood of federal court judges embracing such a drastic shift in approach to merger review.⁵

The Proposed Guidelines are subject to a 60-day comment period (which may be extended) followed by possible updates before being finalized, though we believe it unlikely that there will be material changes to the proposed framework.

Ten of the most significant aspects of the Proposed Guidelines are summarized below.

1. Lower Thresholds for Presuming Harm from Horizontal Mergers

As was highly expected, the Proposed Guidelines reduce the threshold for a finding by the Agencies that a merger between two competitors is likely to substantially lessen competition. Under the 2010 Horizontal Merger Guidelines, the Agencies generally presumed that a merger between two competitors is likely to harm competition if it resulted in a post-merger level of concentration equivalent to four equal-sized firms (i.e., the merger resulted in the post-merger Herfindahl-Hirschman Index (HHI)⁶ being above 2,500). Under the Proposed Guidelines, the Agencies would generally presume that a merger was likely to substantially lessen competition if it (1) creates a firm with greater than 30% market share or (2) increases market concentration to the equivalent of between five or six equally sized competitors (i.e., resulting in a post-merger HHI above 1,800). In particular, any acquisition by a firm with a market share at or greater than 30% of a competitor with market share at or greater than 2% would be deemed presumptively anticompetitive. Both of these presumptions (laid out in more detail below) would significantly increase the number of mergers where the Agencies would find competitive harm and could seek to challenge.

Proposed Market Conditions for a Presumption of Harm for a Horizontal Merger

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