On 19 July 2023, the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) (collectively, the agencies) published draft “Merger Guidelines”, and asked for public comment. The title is in quotes because it is arguable whether they are truly “guidelines” at all, in the sense that the concept has been previously used in the antitrust area. Instead, they are a catalogue of all the theories on which the agencies might investigate and ultimately challenge a proposed transaction. They are consistent with President Biden’s prior executive order on competition and the progressive antitrust agenda, with its focus on increasing concerns with:

• trends towards concentration in the US economy;
• the loss of competition for labor and suppliers; and
• concerns with the elimination of potential competitive threats, however small.

For further information on the Biden executive order and the progressive antitrust agenda, please see “Biden administration’s antitrust blitz – progress and ongoing uncertainty” and “Full year of FTC/DOJ progressive antitrust enforcement“.

The agencies believe that their predecessors have been overly permissive in merger enforcement since the 1970s. In issuing these draft guidelines in this form, the agencies hope to influence the courts and others to accept their expansive view that section 7 of the Clayton Act (the US anti-merger statute) was intended by Congress to reach much more broadly than the courts have permitted in decades. They also hope to discourage merger activity since the current administration is skeptical that such activities normally achieve true economic benefits for persons other than shareholders, managements and Wall Street.

At the same time, the agencies hope to give themselves maximum flexibility to investigate and potentially challenge a merger without running the risk that the resulting case can be defended in court as being inconsistent with these new guidelines. The net result is that the agencies’ have created more of an anti-merger manifesto than anything like “guidelines.” Importantly, the draft guidelines are meant to be comprehensive in the sense that they address the analysis of acquisitions between or among:

• competitors (“horizontal acquisitions”);
• parties at different levels of the supply chain (generally “vertical acquisitions”); or
• parties that do not compete and are not in the same supply chain (“conglomerate acquisitions”).

The breadth of transactions for which the potential competitive effects are to be considered was presaged by the proposed changes to the Notification and Report Form issued pursuant to the Hart-Scott-Rodino Antitrust Improvements Act just a relatively short period prior to the issuance of the draft Guidelines. For further information, see “Proposed premerger notification form overhaul could change how deals are done“.

To explore the current draft Guidelines, some brief history of the government’s merger guidelines might be useful.

1968 Merger Guidelines

The first set of merger guidelines were issued in 1968 by then-Assistant Attorney General (and well-regarded scholar) Donald Turner. These were created in response to widespread business concern about the unpredictability of DOJ’s enforcement efforts, which was well illustrated by its truly random collection of Supreme Court victories in the early 1960 (several of which have now been resurrected in the draft 2023 Guidelines to expand the scope of the Agencies’ potential merger enforcement efforts).

To create greater transparency, DOJ in 1968 adopted some basic quantitative market structural tests based on market shares, especially for horizontal mergers. And for the next decade DOJ tried hard to follow the 1968 Guidelines tests in deciding which horizontal merger cases to bring and which to decline.

1982 Guidelines

In 1982, the merger guidelines were significantly expanded to cover more issues that arose in the context of merger review. The new guidelines shifted the market structural test away from the simple ones contained in the 1968 guidelines to the seemingly sophisticated Herfindahl-Hirschman Index (HHI). Nonetheless, even with the HHI, the inquiry still began with structural considerations of market shares as a trigger.

The structure of the 1982 guidelines were used for the next 40 years, with revisions in 1984, 1992, 1997 and 2010. Most of the revisions reflected advances in economic analysis and/or better articulation of the standards being used by the agencies in their analysis of transactions. The 1982 and successor guidelines explained what “efficiency” justifications DOJ would be willing to consider or accept in reviewing a merger. The 1984 guidelines contained the last ones addressing conglomerate or vertical transactions until the issuance of vertical merger guidelines near the end of the Trump administration (in 2020) which were quickly abandoned once the Biden administration had leadership installed at the Agencies.

2023 draft Guidelines

Their draft Guidelines set forth 13 “guidelines” which are statements of antitrust concern. They include that:

• “mergers should not significantly increase concentration in highly concentrated markets”;
• “vertical mergers should not create market structures that foreclose competition”;
• “when a merger is part of a series of multiple acquisitions, the agencies may examine the whole series,”; and
• “when a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers or other sellers.”

In many ways, the statements are not surprising given the strong messaging from the Biden Administration and the agencies about employment markets and other supplier markets involving powerful buyers.

The draft Guidelines comprise 34 pages, not counting the very important appendices, which themselves total 17 pages concerning the “details” of defining markets and calculating market shares. The draft Guidelines also discuss the agencies’ current thinking on important topics that underlie the analysis of transactions including the failing firm doctrine, entry, and efficiencies. Again, it is not surprising that the agencies view defenses to a potentially anticompetitive merger very narrowly and attempt to leave themselves maximum flexibility in defining markets and in deciding which evidence will be credited.

Key takeaways

There are several key takeaways that are raised by the draft Guidelines. Perhaps most importantly, they signal that what many consider to be the current state of unpredictable merger enforcement is the agencies’ desired result. Unlike all the prior merger guidelines, one cannot read the draft Guidelines and walk away with any confidence that any transaction is safe from review and potential challenge. Perhaps it is appropriate that the draft Guidelines were issued in the same year that the movie “Everything Everywhere All at Once” won the Academy Award for Best Picture.

Indeed, the new guidelines generate more uncertainty because the enforcement catalogue is so broad that it suggests many more potential merger challenges than the agencies have the resources to bring even if they wanted to. Alas, the guidelines give us virtually no guidance about which cases out of the broader set of potential cases agencies are more likely to bring.

But notwithstanding what appears to be a desired deterrent effect resulting from legal and enforcement ambiguity, the draft Guidelines are unlikely to have such a result. This is because the agencies’ actual enforcement efforts have met with such limited success in court, except perhaps for the FTC’s hospital merger agenda. For further information on the agencies’ merger enforcement record, see Four weddings and a funeral: government loses four merger cases but wins one. The courts are not likely to view the guidelines as authoritative reversals of some four decades of developing case law that heavily relies on economic expert testimony. It is telling that, when asked about the Biden administration’s largely unsuccessful efforts to block mergers in court, the FTC Chair in a Congressional hearing pointed to some mergers the parties had abandoned when faced with the costs, delays, and uncertainties of litigation. Meanwhile, she did not address the extent to which the agencies’ aggressive litigation efforts go beyond modern judicial precedents under section 7.

While some parties will abandon transactions in the face of resistance by one of the agencies because of tremendous cost and delay, the larger, higher-value transactions will likely be pursued since the antitrust review and possible challenge will be viewed as a cost of the transaction. This lack of deterrence seems particularly likely for transactions in the emerging digital markets, because of the thus-far haphazard, and primarily unsuccessful, enforcement efforts in that sector and the substantial resources that most such entities in that sector have.

But perhaps the greatest irony of all is that the draft Guidelines seem designed to bring us back to the “nobody can predict what the government will do” reality that gave rise to the original the 1968 guidelines.

This content was originally published on September 7, 2023, via the International Law Office (ILO) newsletter. It can be found here: New merger guidelines – more noise than guidance about government merger enforcement

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