U.S. Merger Enforcement – Ready for Takeoff
The FTC and DOJ kicked 2022 off by signaling they intend to continue ramping up deal scrutiny. It’s a safe bet the agencies will take longer and ask more questions. But uncertainty remains. Will the vociferous minority of FTC Republican commissioners rein in the FTC? Will courts continue to defer to new merger guidelines as persuasive agency expertise or instead treat them as less-persuasive expressions of political will? How should companies identify deals the agencies might think should have “died in the boardroom” versus ones that are remediable?
FTC and DOJ “Modernizing” Merger Guidelines
On January 18, 2022, FTC Chair Lina Khan and DOJ AAG Jonathan Kanter announced that their agencies are seeking public comment to guide “modernizing” the merger guidelines. Khan noted industry consolidation and weakened competition; Kanter noted the digital economy revolutionizing the way companies exploit market power. They each highlighted three topics from the public comment request.
- The “range of business strategies and incentives driving acquisitions” e.g., “moat-building” and “roll-up plays” by private equity. How to analyze whether a deal may “tend to create a monopoly” (including in incipiency) and whether there’s a “trend toward concentration” in the industry?
- Labor market effects, i.e., worker harms, and evidence (e.g., beyond wages, salaries, and financial compensation). Should cost savings through layoffs/reduction of capacity be considered cognizable “efficiencies”?
- Are the guidelines too limited in evidence considered, e.g., re nonprice effects and market power? Should they provide a framework to assess direct evidence of market power in certain markets?
- Are the guidelines faithful to the full language of the Clayton Act – particularly prohibiting mergers that “tend to create a monopoly”?
- Is the “horizontal” and “vertical” framework inconsistent with multi-dimensional modern markets?
- Are the guidelines too focused on market definition while ignoring market realities? What other evidence of market power or head-to-head competition should be considered?
The Republican FTC commissioners “welcomed” the request for public comment as a “posture of continual learning,” but disagreed with what they saw as its problematic assumptions, e.g., “difficulty for rivals equates to harm to competition,” “mergers generally or often fail to realize cognizable efficiencies.”
Kanter’s Remarks on Modernizing Merger Guidelines
Less than a week later, in his first address as AAG on January 24, 2022, Kanter gave more insight. He led with his desire to follow in the footsteps of a predecessor he described as having “embark[ed] on an aggressive campaign of antitrust enforcement to free markets from the grip of monopoly power.”
Turning to merger review, Kanter reiterated his view that the second prong of the Clayton Act – prohibiting mergers that “tend to create a monopoly” – “has often been given less emphasis” and declared “no longer.” Kanter went on, saying that “when [DOJ] concludes that a merger is likely to lessen competition, in most situations we should seek a simple injunction to block the transaction,” rather than a remedy, even structural.
Rhetoric aside, questions remain. How will the “modernized” guidelines look? Sharp dissents at the FTC are no longer new – and the agency has pressed forward with changes notwithstanding. But the guideline changes may be different, given their importance not just to the agencies, but to courts and the corporate community.
Courts are bound by well-entrenched case law consistent with the historical deference paid to the agencies and the existing merger guidelines. The announced “modernization” follows the FTC’s withdrawal of its approval of the Vertical Merger Guidelines a little over a year after they were approved by a prior Commission. By contrast, the last update of the Horizontal Merger Guidelines was in 2010. Courts may be reluctant to defer to the new guidelines as reflections of expertise rather than of current political will, especially if more progressive ideas are reflected.
Courts are not the only players uncertain. Companies are being asked to divine deals the agencies may think should have “died in the boardroom” and those that should live, albeit clipped by remedies. Despite the rhetoric, during Chair Khan’s tenure, the FTC has unanimously cleared deals under the traditional overlap approach in supermarkets, gas and diesel stations, and generic pharmaceuticals.
What’s more certain is that changes from the “modernization” of the merger guidelines will likely lengthen review and broaden scope of inquiry, e.g., labor effects. Deals may take twice as long to review under the updated guidelines. Combined with the agencies’ recent actions (e.g., suspension of early termination, (re)instituting prior approval provisions), these early-2022 developments reinforce the ever-challenging environment even as the agencies say that merger filings are at an all-time high.