After more than two years of preview and consultation, including thousands of public comments, the Antitrust Division of the Department of Justice and the Federal Trade Commission issued the final version of their 2023 Merger Guidelines ("Guidelines") yesterday, December 18, 2023. As we noted when the draft guidelines were released in July, the final Guidelines both harken back to older, long-standing precedent and provide a framework for how the Agencies apply merger enforcement policy in modern economic markets. The Guidelines hold fast to the Biden administration's enforcement policy to address harms from what they perceive to be "excessive" corporate consolidation by reinvigorating and enhancing merger enforcement. Yet, the final Guidelines show that the Agencies have responded to at least some of the criticism of the draft version, and may be more likely to align with how courts currently analyze merger challenges.
The Guidelines reflect both significant and subtle changes. For now, we note the following five key takeaways from the final Guidelines, and we will do a deeper dive into select issues in a series of alerts to follow.
- New Market Share and Lower Market Concentration Levels
to Identify Presumptively Unlawful Horizontal Mergers As
with the July draft Guidelines, the final version includes a
market-share presumption based on a 1963 Supreme Court case and
adopts pre-2010 Merger Guidelines market-structure thresholds to
identify horizontal mergers that are presumptively likely to
substantially lessen competition. Under the new Guidelines, an
acquisition that would result in a combined 30% market share would
be presumptively unlawful, as would "6-to-5" mergers
reflecting post-merger concentration (HHIs) of over 1,800, under
certain circumstances. It remains to be seen whether the Agencies
will challenge mergers under these lowered thresholds, and whether
courts will agree with their market-concentration
presumptions.
- Final Version Softens "Presumptive" Language
and Emphasizes Presumptions are Rebuttable One of the
areas of greatest concern regarding the July draft Guidelines was
the notion that the Agencies were setting out hard and fast rules
against certain types of mergers, for example by stating guidelines
as "mergers should not ...." The final 2023 Guidelines
soften that language – to "mergers may violate the law
when they ..." and make clear in numerous ways that the
Agencies' theories of harm may be rebutted by the merging
parties' evidence. That theme is emphasized in the overview,
the language of the Guidelines themselves, and the discussion of
rebuttal evidence that follows the eleven individual Guidelines
directly. One type of rebuttal evidence involves cost savings and
other merger efficiencies, of which the government has historically
been quite skeptical. The final Guidelines maintain references to
1960s Supreme Court cases that reject efficiencies as a defense to
a merger's illegality. Nevertheless, the final Guidelines
identify a narrow path through which efficiencies might be
credited.
- Comprehensive Approach to Include Vertical and
Non-Horizontal Mergers One important aspect of the 2023
Guidelines is that the Agencies provide a comprehensive approach to
all types of mergers – horizontal, vertical, and
"non-horizontal" (conglomerate) – in one document.
In so doing, they attracted strong criticism of their initial
approach to structural presumptions for vertical and other
non-horizontal mergers. The July draft presumed a vertical merger
involving 50% market foreclosure would be unlawful. The draft
guideline regarding non-horizontal mergers, described as those that
"entrench or extend a dominant position," stated that a
firm with a 30% share would be defined as having a dominant
position. The final 2023 Guidelines retreat somewhat from those
structural presumptions, with no formal market share presumption
for vertical mergers, though noting in a footnote that the Agencies
will infer a firm has or is approaching monopoly power when it has
a 50% or greater share, and stating that a merger by a firm with a
lower share may still raise concerns "when the related product
is important to its trading partners." The 2023 Guidelines
also modernize current theories of harm to address, either for the
first time or in more detail, platform markets, labor markets,
serial acquisitions, and minority investments, the latter two
issues often being associated with private equity firms.
- Economic Analysis, Both Old and New, Reinstated to Main
Text in Final Guidelines The structure of the draft
Guidelines relative to prior versions was a subject of much
discussion, as it emphasized the Agencies' legal theories for
challenging mergers, and the judicial authority supporting those
theories, while relegating much of the economic and evidentiary
analysis to a series of appendices. The final 2023 Guidelines
address these comments by restoring the economic and evidentiary
analyses to the body of the Guidelines themselves. Notably, they
also consolidate the discussion regarding market definition and
measurement, and move that discussion further back in the document
behind rebuttal evidence. This apparent prioritization is
consistent with commentary, especially from economists, arguing
that competitive effects should be highlighted above market
definition. The Guidelines also add new focus on economic evidence
relevant to assessing potential harm from mergers impacting labor
markets.
- As a Practical Matter, What Changes the Risk Assessment from One Week Ago? Not Much. While the 2023 Guidelines signal a more aggressive approach to merger enforcement, they largely reflect what has already become a reality for many companies seeking merger clearance in the Biden administration. Both Agencies have been aggressive and have investigated and challenged mergers based on relatively unconventional theories of harms. For sure, the new market share and lowered market concentration presumptions may change the risk profile for certain deals. But more generally, little may change in practice – at least in this administration – in terms of merging parties' day-to-day engagement with the Agencies on particular theories of competitive effects, the amount and type of evidence required to obtain merger clearance, and the facts and potential harms that are likely to raise Agency concerns. In the long run, the courts will have the final say on whether or not to adopt the new Guidelines' framework in their analyses of merger challenges. Previous changes to the Merger Guidelines by prior administrations have gradually found their way into many judicial decisions to become not just agency practice but part of the prevailing legal standard. And here the Agencies clearly have made an effort to make these Guidelines useful and acceptable to reviewing courts in the hope that they will lead to more agency challenges being sustained. One thing seems certain: the DOJ and FTC under the Biden administration will continue to aggressively scrutinize mergers, and continue to litigate merger challenges, including those involving novel theories and facts. It remains to be seen, however, what the ultimate impact of the new Guidelines will be on influencing which mergers are ultimately found to substantially lessen competition.
Originally Published 19 December 2023
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