The Federal Trade Commission (FTC) and the Department of Justice (DOJ) unveiled a draft update of the Merger Guidelines in July 2023. This pivotal document outlines the procedures and criteria used by these agencies when assessing mergers and acquisitions for compliance with federal antitrust laws.
Why the Update?
The modern economy is ever-evolving, and so are the ways businesses operate within it. Recognising this, the goal of the updated guidelines is to ensure that the agencies' review processes are in line with current economic realities. This will enable them to more accurately determine the impact of a proposed M&A activity on competition. Public feedback on the draft was open for 60 days and closed on 18th September 2023.
The new guidelines make a number of changes to the agencies' previous approach to merger review, including:
- Placing a greater emphasis on the potential for mergers to harm consumers, even if they do not lead to higher prices.
- Considering a broader range of factors when assessing the competitive impact of mergers, including potential harm to innovation and workers.
- Making it more difficult for companies to obtain clearances for mergers in highly concentrated industries.
What Might Change?
Here are some specific implications of the new merger guidelines:
- Companies may need to abandon or restructure deals that are likely to be challenged by the FTC or DOJ.
- Companies may need to spend more time and money on preparing merger applications and responding to agency requests for information.
- Companies may need to offer more concessions to the agencies in order to obtain clearance for M&A.
Key Statements from Officials
- FTC Chair Lina M. Khan emphasised the importance of open and competitive markets in America's economic history. She stated that the new guidelines are a reflection of modern business realities and are informed by a myriad of public comments from various sectors.
- Attorney General Merrick B. Garland warned against unchecked consolidation, highlighting the importance of these updated guidelines in addressing modern market challenges.
- Assistant Attorney General Jonathan Kanter of the Antitrust Division pointed out the changing nature of competition over the years. He assured that there would be a comprehensive process for the public to review and comment before finalising the guidelines.
A Glimpse into the Guidelines
Since 1968, the FTC and DOJ have been issuing and revising merger guidelines to promote transparency and awareness. The new draft not only builds upon previous versions but also introduces clarity.
The updated guidelines kick off with an overview of thirteen principles that will guide the agencies in determining if a merger could potentially violate antitrust laws. It's important to note that these principles are not set in stone; a single merger could be evaluated under multiple guidelines. The document further delves into the specific frameworks and tools that will be employed for each guideline.
The Thirteen Guidelines:
- Mergers should not significantly increase concentration in highly concentrated markets.
- Mergers should not eliminate substantial competition between firms.
- Mergers should not increase the risk of coordination.
- Mergers should not eliminate a potential entrant in a concentrated market.
- Mergers should not substantially lessen competition by creating a firm that controls products or services that its rivals may use to compete.
- Vertical mergers should not create market structures that foreclose competition.
- Mergers should not entrench or extend a dominant position.
- Mergers should not further a trend toward concentration.
- When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series.
- When a merger involves a multi-sided platform, the agencies examine competition between platforms, on a platform, or to displace a platform.
- When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers or other sellers.
- When an acquisition involves partial ownership or minority interests, the agencies examine its impact on competition.
- Mergers should not otherwise substantially lessen competition or tend to create a monopoly.
Takeaway
The release of the draft update to the Merger Guidelines by the FTC and DOJ signifies a notable shift in the approach to antitrust law enforcement. As the global economy undergoes continuous change, it's evident that the mechanisms governing its operations must be revisited and revised accordingly. This update aims to address the evolving nature of business and competition in the modern era.
The decision to seek public feedback on the draft suggests an openness to diverse perspectives, though the impact of such feedback on the final guidelines remains to be seen. It's a move that acknowledges the multifaceted nature of the economy and the myriad stakeholders involved.
Ultimately, the draft update to the Merger Guidelines is an attempt to align regulatory frameworks with current market realities. Its effectiveness and the extent to which it addresses the complexities of today's economy will become clearer once it's finalised and implemented. As with any regulatory change, its true impact will be gauged in its application and the outcomes it produces in the realm of mergers and acquisitions.