On July 19, 2023, the Federal Trade Commission and the Department of Justice released a draft update of the Merger Guidelines. The draft Guidelines describe how the agencies “review … mergers and acquisitions to determine compliance with federal antitrust laws.”¹ The draft is subject to a 60-day comment period, which will end on September 18 and may result in changes.

Areas of emphasis in the draft Guidelines are consistent with current agency leadership’s priorities as set forth in public statements and recent enforcement actions. The draft devotes special attention to potential competitive harm from vertical and conglomerate mergers, entrenchment of firms with dominant positions, potential competition, acquisitions of minority interests, labor markets, and transactions involving platforms.

In a departure from prior merger guidelines, the draft cites extensively to (usually decades old) Supreme Court decisions as legal support and inspiration for principles the draft articulates. Indeed, the FTC’s contemporaneous press release states as the first “core goal” for the Merger Guidelines that they “reflect the law as written by Congress and interpreted by the highest courts. The guidelines are built around statutory text and relevant case precedent.”² Relatedly, in many respects, the draft softens the intensive focus on economic principles in the more recent agency guidelines to focus more significantly on qualitative assessment.

Key Points From the Draft Merger Guidelines

• Market Concentration. Compared to prior merger guidelines, the draft both lowers the concentration thresholds for a presumption of horizontal anticompetitive effects and strengthens the force of that presumption. Under the draft, for example, a market consisting of 10 companies each with a 10% market share is “concentrated,” where previously it would have been considered “unconcentrated”; and a market consisting of five companies each with a 20% market share is “highly concentrated,” where previously it would be only “moderately concentrated.” The draft introduces a new presumption of competitive harm if the merged firm would have more than a 30% share in a relevant market and the merger increases the market Herfindahl-Hirschman Index by more than 100.
• Vertical Mergers. The draft emphasizes various theories of vertical competitive harm, especially the possibility that a vertical merger could give the combined firm the ability and incentive to refuse to supply inputs or disfavor downstream competitors to gain market power downstream, or could lead to transfer of competitively sensitive information. Consistent with the draft’s focus on presumptions based on market structure, if the merged firm will have above a 50% share in a market that is “related” (i.e., upstream or downstream) to another market in which the firm participates, “that factor alone is a sufficient basis to conclude that the effect of the merger may be to substantially lessen competition, subject to any rebuttal.”³
• Potential Competition. The draft devotes substantial attention to harm based on elimination of potential competition. This includes both “actual potential competition”—where one of the merging parties has actual plans to enter a market—and “perceived potential competition”—where competition is disciplined by a perception that one or more merging parties might enter. The perceived potential competition theory was at the heart of the FTC’s recent unsuccessful challenge to the Meta/Within transaction. Importantly, the draft claims that antitrust precedent reflects “a preference for internal growth over acquisition,”⁴ which is consistent with arguments that agency leadership have been making in public statements.
• Dominant Firms. The draft emphasizes that “mergers should not entrench or extend a dominant position.”⁵ The agencies will assess whether a merging party is in a “dominant position” by evaluating whether there is (i) “direct evidence” of the power to “raise price, reduce quality, or impose terms … that they could not obtain but-for that dominance,” or (ii) “one of the merging firms possesses at least 30 percent market share.”⁶ Additionally, the draft discusses a potential conglomerate concern that a “merger could enable the merged firm to extend a dominant position from one market into a related market,” for example by “leverage[ing] its position by tying, bundling, conditioning or otherwise linking sales of two products, excluding rival firms, and ultimately substantially lessening competition in the related market.”⁷ The FTC is currently pursuing a similar theory in its challenge to the proposed Amgen/Horizon transaction. See our alert here. This is the first time agency guidelines have directly stated a position regarding conglomerate effects since the 1968 Merger Guidelines.⁸
• Labor Markets. The draft includes extensive discussion of possible harm in labor markets through combinations of employers that compete for talent. It identifies lower wages or slower wage growth, worse working conditions, or other decreases in workplace quality and potential anticompetitive effects from such mergers.⁹
• Multi-Sided Platforms. The draft devotes an entire section to assessing mergers involving multi-sided platforms. The draft says that the agencies will “consider competition between platforms, competition on a platform, and competition to displace the platform” and assesses various ways in which a merger involving one or more platform suppliers could harm competition.¹⁰
• Serial Acquisitions. The draft explains that a firm may violate Section 7 of the Clayton Act by undertaking an anticompetitive series of acquisitions of smaller firms in the same or related sectors, even if none of these acquisitions, by itself, would violate Section 7. The inquiry will focus on the cumulative effect of these acquisitions, and the agencies will assess both consummated and proposed acquisitions by the acquiring firm and the firm’s overall strategy regarding those acquisitions.¹¹ This portion of the draft is consistent with recent speeches by agency leadership that have emphasized employing Section 7 to block mergers that are part of an incipient trend toward industry concentration.¹²
• Partial Ownership and Minority Investments. The draft articulates ways in which acquisitions of partial ownership and minority investments could harm competition—principally by (i) giving the acquirer the ability to influence a rival’s competitive behavior through board representation or other influence, (ii) reducing the incentives for a firm that owns an interest in a competitor to compete robustly against the competitor because the firm is entitled to share of the competitor’s profits, or (iii) giving the acquiring firm access to competitively sensitive information from the target, which could reduce the robustness of competition between the two firms.
• Qualitative Factors in Defining Markets. Consistent with the draft’s focus on qualitative evidence and reduced emphasis on economics, the draft lists four tools on which the agencies may rely in defining relevant antitrust markets: (i) direct evidence of substantial competition between the merging parties, (ii) direct evidence of market power, (iii) “practical indicia” of a market as discussed in Brown Shoe, and (4) the hypothetical monopolist test (HMT).¹³ This is a significant change from the 2010 agency merger guidelines, which placed principal reliance on the HMT.¹⁴

What Is Next? 

• 60-Day Comment Period. As explained, the draft Guidelines will be subject to a 60-day comment period, which will end on September 18. The draft will undoubtedly draw extensive commentary, both negative and positive. The comments could lead to changes, but fundamental changes seem unlikely.
• Impact on Agency Investigations. Once adopted, the Guidelines will have substantial implications for businesses contemplating transactions that may implicate the principles in the Guidelines, since they will affect the agencies’ approach to merger reviews—including whether to open a formal investigation, issue a second request or challenge a merger. 
• Impact on Litigation. Courts have traditionally found the agencies’ merger guidelines persuasive. It remains to be seen, however, whether the final Merger Guidelines will have similar influence, particularly insofar as they articulate less conventional and more controversial methods of analysis, some of which courts have recently rejected.
• How Long Will the Guidelines Last? Particularly given that the draft Guidelines were approved by a 3–0 vote of only Democratic FTC Commissioners (there currently are no Republican Commissioners), there are real questions about whether the Guidelines would survive a change to a Republican FTC majority or new DOJ leadership under a Republican administration, which could result in very different approaches to merger enforcement. Indeed, in September 2021, the new Democratic FTC majority voted to withdraw the Vertical Merger Guidelines, which had just come into effect in 2020.