The long-awaited newly proposed Merger Guidelines were finally released at the end of July, and the Department of Justice and Federal Trade Commission have shaken things up. 1 Consistent with President Biden's call for heightened antitrust scrutiny of mergers across the economy, the Merger Guidelines outline a framework that could raise the bar for parties to get approval for many types of combinations, if and when the guidelines take effect. 2 According to Attorney General Merrick Garland, "[u]nchecked consolidation threatens the free and fair markets upon which our economy is based," and the Merger Guidelines will be part of the government's arsenal to keep industries in check.3

The Merger Guidelines lay out thirteen tenets that will direct the Antitrust Agencies' analysis, all of which reflect the government's concern about increasing market concentration, vertical integration, acquisitions of potential competitors, rollup acquisitions and investments, multi-sided platforms, and market concentration in labor markets:

Guideline 1: Mergers Should Not Significantly Increase Concentration in Highly Concentrated.

Guideline 2: Mergers Should Not Eliminate Substantial Competition between Firms.

Guideline 3: Mergers Should Not Increase the Risk of Coordination.

Guideline 4: Mergers Should Not Eliminate a Potential Entrant in a Concentrated Market.

Guideline 5: Mergers Should Not Substantially Lessen Competition by Creating a Firm That Controls Products or Services That Its Rivals May Use to Compete.

Guideline 6: Vertical Mergers Should Not Create Market Structures That Foreclose Competition.

Guideline 7: Mergers Should Not Entrench or Extend a Dominant Position.

Guideline 8: Mergers Should Not Further a Trend Toward Concentration.

Guideline 9: When a Merger is Part of a Series of Multiple Acquisitions, the Agencies May Examine the Whole Series.

Guideline 10: When a Merger Involves a Multi-Sided Platform, the Agencies Examine Competition Between Platforms, on a Platform or to Displace a Platform.

Guideline 11: When a Merger Involves Competing Buyers, the Agencies Examine Whether It May Substantially Lessen Competition for Workers or Other Sellers.

Guideline 12: When an Acquisition Involves Partial Ownership or Minority Interests, the Agencies Examine Its Impact on Competition.

Guideline 13: Mergers Should Not Otherwise Substantially Lessen Competition or Tend to Create a Monopoly. 4

While numerous notable changes are proposed in the Merger Guidelines, a few stand out in terms of their practical impact for clients.

  • First, the Merger Guidelines set out significantly lower market concentration thresholds for horizontal and vertical mergers, which means more mergers will be presumptively viewed as being potentially anticompetitive, thereby triggering review by the Antitrust Agencies.
  • Second, the Merger Guidelines are seemingly pushing for a new legal standard for the market definition that will include certain non-price qualitative factors in identifying competitors. This will give the Antitrust Agencies more leeway in determining which market participants may offer a competitive constraint to the proposed combination.
  • Finally, the Merger Guidelines seem to deemphasize both econometric and efficiencies analyses, both of which have traditionally been bedrocks in merger justification and defense strategies. These, and other changes, suggest a much more difficult road to secure merger investigation clearance.

Healthcare companies and private equity firms should be particularly attuned to the proposed changes. The new market definition, concentration thresholds and vertical merger guidance will all impact healthcare companies as they engage in all manner of M&A transactions. Private equity firms, which have been in the crosshairs of antitrust enforcers since the beginning of the Biden Administration, are now put on notice that there is an express framework that will look to prior and prospective acquisitions. 5 Merger Guidelines 8, 9, and 12, in particular, will impact private equity strategy as firms look to acquire some additional percentage, if not all, of a company in the same portfolio industry segment or selling a portfolio package to maximize the return on investment.6

The Merger Guidelines have not been finalized yet, and the government will be accepting public comments until September 18, 2023, as part of the 60-day comment period. The Polsinelli Antitrust Team is available to support clients in drafting comments to address concerns regarding the proposed framework. Nonetheless, it would be reasonable to anticipate that Merger Guidelines similar in substance to this draft will likely be finalized and issued, perhaps as early as the end of the year.

It also remains to be seen whether the courts will follow the Merger Guidelines. Because the new Merger Guidelines adopt methodologies and thresholds that are significantly different from those used in recent court cases, many observers expect that courts will be skeptical of efforts to turn the Merger Guidelines into law. Indeed, the draft Merger Guidelines cite older antitrust case law extensively, while failing to address some of the more recent losses the agencies have suffered. Of course, even if the courts do not adopt the draft Merger Guidelines, enforcers are likely to use the more aggressive guidelines to investigate and challenge deals that may have received little scrutiny under prior administrations.

More importantly, the Merger Guidelines, along with the massive, proposed changes to the Hart-Scott-Rodino premerger filing framework, represent the need for a fundamental legal strategy shift for companies. 7 Now more than ever, clients need to engage antitrust counsel to assist with an early and substantive analysis of an organization's acquisition pipeline. The "anti-merger" sentiment outlined by all of the government's policy changes means that the Antitrust Agencies are significantly more likely to question, and potentially challenge, a transaction. And while one may contemplate expediting certain acquisition timelines to sign and close deals before these proposed changes go into effect, antitrust practitioners have already experienced the implementation of some of these policies in merger investigations.

Footnotes

1. Draft Merger Guidelines, available at: https://www.ftc.gov/system/files/ftc_gov/pdf/p859910draftmergerguidelines2023.pdf

2. Executive Order 14036, July 9, 2021, "Executive Order on Promoting Competition in the American Economy," available at: https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/

3. FTC Press Release, "FTC and DOJ Seek Comment on Draft Merger Guidelines," available at: https://www.ftc.gov/news-events/news/press-releases/2023/07/ftc-doj-seek-comment-draft-merger-guidelines

4. Id. at pp. 3-4.

5. See Polsinelli Client Insights, June 15, 2022, "Private Equity Pass No More: Antitrust Enforcers Look to Increase Scrutiny on "Roll Up" Acquisitions," available at: https://www.polsinelli.com/arindam-kar/publications/private-equity-pass-no-more-antitrust-enforcers-look-to-increase-scrutiny-on-roll-up-acquisitions

6. Id.

7. See Polsinelli Client Insights, July 6, 2023, "Proposed Changes to HSR Process Could Quadruple the Burden of Making Premerger Notification to Antitrust Enforcement Agencies," available at: https://www.polsinelli.com/arindam-kar/publications/proposed-changes-to-hsr-process-could-quadruple-the-burden-of-making-premerger-notification-to-antitrust-enforcement-agencies

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