Analysis of the New U.S. Antitrust Draft Guidelines (2023) - Implications and Insights for Mergers and Acquisitions
On the 19th of July, in the year 2023, the United States antitrust enforcers, namely the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ), collectively referred to as the “Agencies,” unveiled draft merger guidelines for public commentary. These draft guidelines, labeled as the “Draft Guidelines,” are intended to supplant the prevailing Horizontal Merger Guidelines, which were last revised in 2010, along with the Vertical Merger Guidelines issued in the year 2020. The primary purpose of these Draft Guidelines is to offer comprehensive direction pertaining to both horizontal and vertical mergers.
It is important to note that the Draft Guidelines will not be officially ratified by the Agencies until after the culmination of the public comment period, which is anticipated to conclude on the 18th of September, 2023. Based on the substantial preparatory work carried out by the Agencies leading up to the unveiling of the Draft Guidelines, including the assimilation of public input and workshops, it is expected that the final version of the guidelines, referred to as the “Final Guidelines,” will undergo minimal alterations.
Irrespective of the timeline for the eventual endorsement of the Final Guidelines, the Agencies have already embarked on the incorporation of aspects of the Draft Guidelines into their operational practices. This includes the initiation of inquiries related to labor markets and emerging competitors in the technology sector, as discerned from official statements on enforcement priorities and recent enforcement actions. In parallel with the proposed modifications to the Hart-Scott-Rodino merger filing process, the Draft Guidelines signify the Agencies’ ongoing commitment to the rigorous assessment of mergers and acquisitions, leading to a broader range of transactions being subjected to investigation. This, in turn, is expected to extend the clearance timelines. The adoption of the Final Guidelines will serve as a significant milestone in realizing the Biden administration’s pledge to enhance antitrust scrutiny and enforcement.
One of the principal impacts of these Draft Guidelines lies in their function as a conduit through which the Agencies elucidate their approach to identifying potentially unlawful mergers. Beyond offering guidance to merging entities regarding the likely methodological trajectory of the Agencies’ evaluation of a proposed transaction’s competitive ramifications, the guidelines are designed to be a reference for courts in their deliberations and decisions. It is notable that previous iterations of the Horizontal Merger Guidelines, such as those from 2010, have been frequently referenced by courts in their analyses.
Furthermore, the Draft Guidelines, in a notable departure, incorporate references to binding legal precedents and Supreme Court verdicts. Evidently directed towards the legal framework, the Draft Guidelines emphasize that they invoke legally binding principles to elucidate fundamental concepts. However, the question of whether the courts will unequivocally embrace the Final Guidelines remains an open inquiry. While the Draft Guidelines make extensive allusions to historic Supreme Court and appellate court decisions, they do not engage with recent instances where the Agencies’ positions were contested in court, such as cases involving United HealthGroup, United States Sugar Corp., Meta Platforms, Booz Allen Hamilton, and Microsoft. Consequently, while the Draft Guidelines serve as a guidepost for the Agencies’ assessment, investigation, and potential litigation, their acceptance within the legal sphere remains to be seen.
Undoubtedly, the intensified focus on antitrust scrutiny could prompt a heightened propensity for transactions to be abandoned even before litigation becomes a factor. The extended timelines and augmented scrutiny in the form of “Second Requests” may exert a dampening influence on prospective deals, both during the clearance phase and as entities weigh the desirability of acquisitions that could potentially entail complications arising from the revised guidelines.
The structural framework of the Draft Guidelines is organized around 13 “core guidelines” that encapsulate the most recurrent challenges encountered in merger evaluations. While many of these principles merely reiterate established tenets, such as Guideline 2 affirming the importance of maintaining substantial competition among firms, the guidelines’ application in several contexts underscores a more assertive approach to enforcement.
Further enhancing the guidelines’ impact, several of these core guidelines reflect enforcement initiatives declared by authorities in the present administration, which have elicited varying responses within the professional and academic spheres. Noteworthy among these is Guideline 11, which underscores the Agencies’ scrutiny of mergers involving competing buyers and the consequential implications for labor markets and worker welfare.
Substantive shifts from the 2010 Horizontal Merger Guidelines are evident in the Draft Guidelines, particularly concerning the criteria for establishing a presumption of anticompetitive effects. Under the proposed Draft Guidelines, a merger is presumed to have anticompetitive consequences if it leads to a certain increase in market share concentration metrics above a specified threshold. In contrast to the prior approach, the Draft Guidelines suggest a lower threshold for defining a “highly concentrated market” and introduce a new trigger related to market share.
Another notable change revolves around firms with a “dominant” market position. Guideline 7 introduces novel parameters for such firms, which includes evaluating whether a merger would bolster the firm’s existing dominance and examining factors like entry barriers and competitive alternatives.
Furthermore, Guideline 8 emphasizes the Agencies’ aversion to trends towards increased market concentration, while Guideline 9 specifically addresses the potential harm arising from multiple small acquisitions, even if individually they might not be problematic.
Guideline 11, which addresses labor market concerns, signifies a distinctive aspect of the Draft Guidelines. By focusing on the impact of mergers on worker welfare and labor markets, the guidelines indicate the Agencies’ commitment to ensuring worker protection within the context of antitrust evaluations.
The Draft Guidelines represent a significant departure in merger enforcement priorities and analysis, signaling the Agencies’ intention to adopt a more robust approach. Coupled with the proposed adjustments to the Hart-Scott-Rodino process, these guidelines mark a clear move towards heightened antitrust scrutiny, extending to transactions that might have previously garnered less attention. It is crucial, however, to recognize that the Draft Guidelines, despite their informative value, do not possess the force of law. The eventual Final Guidelines will provide a stance on the Agencies’ enforcement viewpoints, subject to judicial review. Furthermore, while the Draft Guidelines may intensify the scrutiny of transactions, they do not guarantee an increase in the number of successful challenges to deals in federal court.