May 10, 2024
Late last year, the Federal Trade Commission and the Justice Department (the “Agencies”) jointly issued the long-awaited, new Merger Guidelines (the “Guidelines”) which replace the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines.[1] These Guidelines, while not binding, provide the roadmap for how the Agencies may view a particular merger or acquisition and signal that the more stringent review of mergers and acquisitions under the Biden administration’s enhanced enforcement policies will continue.
What Are the Guidelines?
The eleven Guidelines set out analytical frameworks and factors that are used to help the Agencies identify those mergers that may tend to create a monopoly or decrease competition as well as describe the evidence that may be used to rebut such findings. The Guidelines do not serve as exhaustive lists of the theories or types of evidence that the Agencies can utilize to assess whether the effect of a merger may be to create a monopoly or decrease competition. The Guidelines are comprised of three parts: (1) the first six describing characteristics of mergers that may harm competition in violation of the U.S. antitrust laws; (2) the latter five setting forth how the Agencies apply Guidelines 1 - 6 to specific scenarios; and (3) commentary outlining rebuttal evidence which may be used to counteract these presumptions.
1. The First Six Guidelines and Presumptions of Illegality
The first six Guidelines expand the situations where the Agencies may find a presumption of illegality and lower the threshold for a highly concentrated market. They are:
2. The Remaining Five Guidelines & How Everything is Applied
The remaining five guidelines explain how the Agencies will analyze specific concerns. They are:
3. The Use of Rebuttal Evidence
Mergers are not necessarily “dead in the water” if they can establish credible rebuttal evidence. Section 3 of the Guidelines allows for rebuttal evidence to demonstrate no substantial lessening of competition is threatened by the merger. The analysis should consider “other pertinent factors” that may “mandate[] a conclusion that no substantial lessening of competition [is] threatened by the acquisition.”[17] “The factors pertinent to rebuttal depend on the nature of the threat to competition or tendency to create a monopoly resulting from the merger.”[18]
The failing firm defense “applies when the assets to be acquired would imminently cease paying a competitive role in the market even absent the merger.”[19] Entry and repositioning arguments allege that “a reduction in competition resulting from the merger would induce entry or repositioning into the relevant market, preventing the merger from substantially lessening competition or tending to create a monopoly in the first place.”[20] For this argument to be effective, the Agencies will consider the timeliness, likelihood and sufficiency of entry. Procompetitive efficiencies must be merger specific, verifiable, prevent a reduction in competition, and not anticompetitive.[21]
Conclusion
The Guidelines highlight the Agencies’ focus on “excessive market consolidation across industries” and continue their ramped-up approach to antitrust enforcement. They reflect the Agencies’ desire to curtail trends of market consolidation and indicate that deals may face more hurdles to close. While the Guidelines clearly forecast a challenging antitrust climate, merging parties should remember: (1) the presumptions are rebuttable; and (2) due to finite Agency resources, it is not realistic to expect that every merger that triggers the presumption will be investigated or challenged. That said, parties are well advised to engage in early planning and careful analysis to understand and reduce potential antitrust risks. Parties should consult antitrust counsel early in the process given the robust regulatory and enforcement environment.
The authors have expanded on this topic in an article addressing the impact of the Guidelines for the healthcare industry and make predictions for their significance for healthcare firms. Click here to read the article.
[1] United States Department of Justice and Federal Trade Commission, Merger Guidelines (Dec. 18, 2023), available at https://www.ftc.gov/reports/merger-guidelines-2023. The Commission unanimously approved the Guidelines.
[2] The HHI measures market concentration by squaring the market shares of each competitor in a market and summing those values. When there are many entities of nearly equal size, the HHI measures close to zero. The maximum HHI value is thus 10,000 points if a single entity controls the entire market. Those markets with an HHI between 1,000 to 1,800 points are considered “moderately concentrated.” Those markets with an excess of 1,800 points are “highly concentrated.” Transactions that increase the HHI measure by more than 100 points are “presumed likely to enhance market power under the Horizontal Merger Guidelines.” United States Department of Justice, Antitrust Division, Herfindahl-Hirschman Index (last updated Jan. 17, 2024), at https://www.justice.gov/atr/Herfindahl-hirschman-index.
[3] Guidelines at 5-6.
[4] Id. at 2.
[5] Id.
[6] Id. at 7-8.
[7] Id. at 8-10.
[8] Id. at 3.
[9] Id. at 11.
[10] Id. at 3.
[11] Id.
[12] Id.
[13] Id.
[14] Id.
[15] Id.
[16] Id.
[17] Id. at 30 (internal case citations omitted).
[18] Id. at 30.
[19] Id.
[20] Id. at 31.
[21] Id. at 32-33.
These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Internet subscribers and online readers should not act upon this information without seeking professional counsel.