As mergers among major companies become increasingly prevalent, those at the Federal Trade Commission and the Department of Justice have been looking for ways to toughen up antitrust enforcement to foster healthy market competition. After a list of recent losses in the courts over attempts to curtail the power of companies like Meta and Pfizer, these regulatory bodies have released new draft guidelines for merger reviews and for the first time, they include specifics on how companies can "use their scale to harm future rivals".
These proposed guidelines support the Biden Administration's agenda of implementing a tougher antitrust approach when regulating big businesses. Since Chair Lina Khan was appointed in 2021, the FTC has aggressively ramped up its enforcement actions, coming down hard on anticompetitive mergers after decades of the agency taking a so-called lackadaisical approach to antitrust prosecution. Now Khan, in collaboration with the DOJ's top antitrust official Jonathan Kanter, has provided critical updates to guidelines, which were previously revised in 2020. While these parameters are not yet official law, they can still influence the way courts handle mergers and acquisitions, creating serious concerns for big companies as innovation continues to prompt competition and legal conflict.
Antitrust Guidelines at a Glance
The new rules aim to promote more competition overall, specifically supporting small businesses and entrepreneurs. Featuring 13 points of action, the guidelines are intended to help regulators determine if a deal should be blocked. With more definitive and stringent rules aimed at discouraging monopolies resulting from vertical and horizontal M&As, the proposed guidelines also attempt to bar mergers that result in a post-transaction market concentration above 30%.
In addition, the proposal features guidance on the protection of labor that looks to stave off any loss of competition in the labor market resulting from an M&A transaction.
The public has until September 18 to comment on the proposal. Meanwhile, big businesses across industries should prepare for the potential implications associated with the revision's passing as regulators will likely be quick to target Big Pharma, Big Tech, and others currently dominating their industries.
Failed Enforcement Attempts Drive Change; More Conflicts on the Horizon; and Why You Need Industry Experts
After the FTC failed to halt Microsoft's acquisition of Activision and lost their bid to stop Meta's purchase of VR company Within, it became evident to Khan that the agency's approach to M&As needed a major overhaul. Though tech isn't the only sector seeing increased conflict with regulators; Khan stated in a two-day pharmaceutical workshop with the DOJ last year that the FTC has "seen empirical reports showing that killer acquisitions, or acquisitions made for the purpose of shutting down potential competitors, may be relatively common in the pharmaceutical industry." Over the past two years, the FTC has vowed to ramp up oversight of the pharmaceutical industry, as shown through their numerous suits against M&As by Johnson & Johnson, Pfizer, and most recently, Amgen and Horizon.
The proposed rules are set to apply to all potential deals in the economy, but some critics feel that specific markets may be disproportionally affected by the revisions. Companies operating in the digital platform space and technology sector will likely see a spike in enforcement actions as the new guidelines feature extensive details on how to regulate deals in the digital age. Further, those in the pharmaceutical industry should expect increased scrutiny of biopharma M&As, particularly when many pharmaceutical companies look to fill projected revenue loss for impending drug patent cliffs.
While these guidelines will not move closer to being law for at least another 60 days, now's the time for big business to review items that may be the subject of regulatory scrutiny under the proposed guidelines and assess their document creation and retention policies to ensure all required documents related to a transaction are available. Additionally, in order to mitigate potential regulatory action regarding the labor market, companies considering a merger should assess the effects a transaction could have on their employees, including their use of non-compete agreements and how they could harm competition post-deal.
Counsel engaged in M&A transactions should retain subject matter experts as early as possible to ensure their antitrust risk mitigation strategies can withstand the guideline revisions. New cases that spur from the guideline's approval will undoubtedly be complex and require an expert with hands-on experience who understands industry-specific issues that affect their sector. Rather than a general economist, an industry expert can better inform legal strategies and allow counsel to stay a step ahead when it comes to potential litigation.
In addition, engaging with industry experts can help prepare organizations for increased regulatory scrutiny by providing insights into the deal's potential competitive effects and completing an analysis of the market's players. Further, these experts can assess plaintiff practices, collaborate with trusted economists to analyze general market conditions, and offer an insider's knowledge of competitive industry landscapes.
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