The Agencies Release Consolidated Merger Guidelines: Insights From The Latest Signal For Expanded Merger Enforcement

• Published date: 31 July 2023
• Subject Matter: orporate/Commercial Law, Antitrust/Competition Law, M&A/Private Equity, Antitrust, EU Competition
• Law Firm: Akin Gump Strauss Hauer & Feld LLP
• Author: Mr Corey W. Roush, Gorav Jindal, Sabira F. Khan and Taylor Randleman

On July 19, 2023, the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) (collectively, the "Agencies") issued a draft update of the Merger Guidelines (hereinafter, the "Proposed Merger Guidelines"), which President Biden forecasted in 2021 an executive order outlining goals of antitrust reform.¹ As their name suggests, merger guidelines outline the framework used by the Agencies to give effect to the antitrust laws that regulate mergers. Merger guidelines do not have the force of law and courts are not obligated to follow them. Rather, they provide guidance on how the Agencies plan to enforce the law. The principal antitrust law governing the regulation of mergers and acquisitions is Section 7 of the Clayton Act; it prohibits transactions that may substantially lessen competition or tend to create a monopoly. Section 7 (and other antitrust laws) are what courts are asked to interpret.

The Proposed Merger Guidelines consolidate and replace prior guidance that outlined the framework for the Agencies' analysis of horizontal and vertical mergers and acquisitions.² The Agencies are soliciting comments on the Proposed Merger Guidelines until September 18, 2023.

The Proposed Merger Guidelines are consistent with the tenor of merger enforcement under the Biden administration. In this respect, they are not surprising. But they provide a clearer window into the Agencies' thinking about how merger enforcement should proceed. If made final in their present form, the Proposed Merger Guidelines not only expand existing avenues for the Agencies to determine that a merger may be unlawful, they attempt to open new ones as well. These Guidelines portend increased antitrust scrutiny and, although touted for their ability to provide a "clear and administrable framework," introduce new concepts that create uncertainty and opportunity for uneven application.

Key Points

Some of the most significant changes include:

• Horizontal merger analysis: The Proposed Merger Guidelines would replace the Horizontal Merger Guidelines of 2010 and would
  • Define, for the first time, a market share of 30% as the threshold for determining that a firm is "dominant."
  • Lower the thresholds for both market concentration and a merger's effect on the concentration needed to trigger an Agency presumption of illegality.
  • Lower the proof required to establish antitrust markets by allowing the Agencies to sustain their proposed antitrust market with a showing that a hypothetical monopolist of a candidate group of products might worsen any "terms of sale."
  • Create two new paths for determining that a horizontal merger is unlawful, including (1) the ability to rely exclusively on evidence of substantial competition between the merging parties even if the underlying market is not concentrated and the merged firm would have less than 30% share in that market and (2) by demonstrating, without more, that the merger would eliminate a potential entrant or perceived potential entrant.

Together, these changes would make it easier for the Agencies to define markets and make it difficult for "5-to-4" mergers'i.e., mergers leaving four or fewer competitors post-transaction'to gain antitrust clearance at the Agencies.

• Vertical merger analysis: The Proposed Merger Guidelines expand the ability of the Agencies to challenge so-called vertical mergers'mergers between firms that operate in different levels of the supply chain. Vertical mergers do not change the number of competitors or the merging parties' market shares anywhere in the supply chain. Three key changes include
  • Announcing that a market share of 50% anywhere in the supply chain is sufficient for the Agencies to determine that a vertical merger affecting this supply chain is unlawful.
  • Broadening the range of potential mechanisms for vertical transactions to harm rivals, including by acquiring products or services not currently used in the supply chain, and, thus, improve a rival's ability to determine the legality of the proposed transaction.
  • Rejecting reputational harms and contractual commitments that would inhibit engaging in the claimed anticompetitive behavior as valid reasons why the merged firm may lack the incentive or ability to harm competition.
• The Proposed Merger Guidelines also create new bases for concluding that a merger'horizontal, vertical or otherwise'may substantially lessen competition, including if the merger
  • "Entrenches" or "extends" a dominant position into new markets by, for example, increasing switching costs based on the possibility of bundling products and services (similar to the FTC's allegations in its challenge to Amgen/Horizon).
  • "Contribut[es] to a trend towards consolidation" or is part of a series of acquisitions by an acquiring party.
  • Constitutes unlawful cross ownership or common ownership, even where the acquisitions involve minority interests in the target.
  • Has potential effects on buyers and labor (regardless of the effect, if any, on the products at issue and any benefits to sellers in the same market).
  • Displaces or harms competition on or between multi-sided platforms, especially if a platform operator also provides a service or product in connection with the platform, which may create a conflict of interest.

This new framework is the latest signal by the Agencies that merging parties will face increased antitrust scrutiny in their efforts to merge. While the Agencies' guidance is not considered law, courts have cited to past guidelines frequently in their decision-making. Whether courts will continue to rely on the latest version of merger guidelines in their decision-making remains to be seen, but we suspect that merging parties will increasingly test this question through litigation, particularly in light of the Agencies' recent history in district courts around the country.

The Proposed Merger Guidelines Lay the Groundwork for Increased Scrutiny of Mergers and Acquisitions

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