The Department of Justice (DOJ) and the Federal Trade Commission (FTC) announced on January 18, 2022, that they are jointly undertaking a review of the existing merger guidelines. In a joint press conference, FTC Chair Lina Khan (view statement) and Jonathan Kanter (view statement), the assistant attorney general for antitrust, emphasized the administration's concerns over growing concentration in the economy.
Although completion of the review is most likely a year or more away, we expect an effort by DOJ and FTC to develop guidelines that will strengthen their ability to contest mergers.
Trend: Wave of Mergers
Premerger filings are double what they have been over the past five years, and "decades of mergers have been a key driver of consolidation across industries, with this last merger wave threatening to concentrate our markets further yet," Khan noted. "Evidence suggests that many Americans historically have lost out, with diminished opportunity, higher prices, lower wages, and lagging innovation."
Quoting U.S. Attorney General Merrick Garland, Kanter said "too many industries have become too consolidated over time," and added, "We need to understand why, and to think carefully about how our merger analysis tools can do better to prevent this problem from getting worse."
Public Comment Period
As the starting point of this merger guideline review, DOJ and FTC are seeking public comment on 15 specific topics, explained in a 10-page Request for Information. Responses from the public are requested by March 21, 2022.
Implications for Businesses Considering Mergers or Acquisitions
This announcement is important for businesses contemplating mergers or acquisitions for the below reasons:
- It signals the intent of the Biden administration to revise the agencies' merger analysis in a manner to "strengthen enforcement of illegal mergers," as the press release's title states.
- It expresses an intention to go beyond existing analysis of consumer welfare focused on pricing concerns.
Further, the remarks of Khan and Kanter, combined with the information request topics and a press release, provide some initial understanding on areas of merger enforcement that will be considered and strengthened, both formally through revised guidelines and in the agencies' approaches to pending mergers in the interim, as follows:
- Standard of Illegality: Both Kanter and Khan emphasized that the Clayton Act prohibits mergers that "tend to create a monopoly," in addition to those that "may be substantially to lessen competition." Kanter observed that merger enforcement often focuses on the lessening competition prong of the statute and suggested that more attention should be paid to the "tend to create a monopoly" prong.
- Horizontal/Vertical Merger Guidelines: It is noteworthy that the review will be of "merger guidelines"—it does not appear to be specific to either the horizontal or the vertical merger guidelines. The Horizontal Merger Guidelines were last revised in 2010. The Vertical Merger Guidelines were revised, after 36 years, in 2020, but last year the FTC withdrew from those guidelines. Kanter stated that DOJ "shares the FTC's substantive concerns regarding vertical merger guidelines." He went on to note: "…the guidelines have bifurcated horizontal and vertical analysis, yet often transactions don't neatly fit into these categorizations. Does the framing of horizontal versus vertical analysis itself narrow us to a two-dimensional view of modern markets that are often multi-dimensional? How should the guidelines account for these market realities?"
It will be interesting to see if the revised guidelines continue to evaluate horizontal and vertical mergers under a bifurcated analysis or whether horizontal and vertical effects are analyzed in some type of combined framework.
- Emphasis on Labor Markets: There is a strong emphasis on anti-competitive effects in labor markets. Khan asked if the guidelines "adequately assess whether mergers may lessen competition in labor markets, thereby harming workers?" She raised the question in her remarks as to whether, when efficiencies of "cost savings through layoffs or reduction of capacity" are asserted, the guidelines should treat these "as cognizable 'efficiencies.'" The press release specified that "the agencies seek information regarding how the guidelines should analyze labor market effects of mergers." The administration has placed an emphasis on challenging restraints in the labor market, such as non-competition and no-poach agreements, and this emphasis appears to continue with merger enforcement analysis.
- Emphasis on Technology: There is a clear emphasis that technology advancements require additional competitive analysis, and there is a clear focus on determining how "the unique characteristics of digital markets" affect competition. Kanter stated the digital economy has transformed industry and "we need to ensure our tools today allow us to fully understand the markets of today." There are a number of questions posed concerning digital markets in the Requests for Information. We expect that any revised guidelines will deal with competitive effects resulting from technology in much more detail than the present guidelines.
- Emphasis on Market Definition: There appears to be an emphasis on determining the proper role of market definition in merger analysis. Kanter observed "[i]n a dynamic, multi-dimensional economy, the static formalism of market definition may not always be the most reliable tool for assessing the potential harms of mergers." The press release highlights that the agencies seek information "on when direct evidence of a transaction's likely competitive effects, such as evidence of head-to-head competition, may eliminate the need for a separate market definition exercise." How the revised guidelines present the proper role of market definition could constitute a significant change in the analytic framework of merger analysis.
The goal of revising the merger guidelines appears to be to provide the government with additional tools and principles that can be used to successfully challenge mergers that previously either have not been challenged or which have been challenged unsuccessfully. The analytic framework used by the agencies to evaluate the competitive impact of mergers may be significantly altered. How the process proceeds will need to be monitored closely to better understand how the agencies will evaluate mergers and acquisitions going forward.
We Can Help
If you have questions about how the changes detailed above might affect your business, please contact Maslon Attorney Jim Long.