U.S. Antitrust Agencies Finalize Merger Guidelines, Mostly Maintaining Expansive Approach to Merger Enforcement

On December 18, 2023, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice (collectively, “the Agencies”) jointly issued a final version of their revised merger guidelines (“Final Guidelines”). The Final Guidelines are substantially similar to the draft version of the guidelines that the Agencies proposed in July of this year (“Draft Guidelines”), which we analyzed in a previous client alert, but the Agencies made some slight modifications in response to the comments they received.

Like previous iterations of their merger guidelines, the Final Guidelines are a statement of enforcement policy and reflect the Agencies’ priorities and approach in analyzing proposed transactions. Their predictive value is diminished by their reliance on subjective standards and multi-factored analyses, rather than objective factors and potential safe harbors. However, by indicating more generally that the Agencies will continue to scrutinize more—and more types—of deals than prior administrations, the Final Guidelines provide a degree of transparency regarding how the Agencies currently view transactions. It should be noted that:

• The Final Guidelines are largely consistent with how the Agencies have described their approach to investigating transactions under the current Administration, but they provide little guidance on how the Agencies weigh various factors or how they make enforcement decisions in particular cases.
• The guidelines are not binding on courts, and it is unclear how persuasive they will be to judges.
• Future leaders of the Agencies could change these guidelines, withdraw them, or apply them in a significantly different manner without making formal changes.

The Minor Changes from the Draft Guidelines Underscore the Agencies' Stated Goal of Increased Merger Enforcement

The Final Guidelines make some modest changes to the July Draft Guidelines but continue to embody the current Administration’s stated policy of increasing merger enforcement.

• Vertical Mergers: The Final Guidelines adopt an inference “that the merging firm has or is approaching monopoly power in the related product” above a 50% foreclosure share, but no longer explicitly deem such transactions presumptively illegal. We anticipate continued careful scrutiny of vertical transactions, including non-traditional vertical relationships where such transactions may restrict rivals’ access to any products, services, or routes to market that those rivals use to compete.
• Defining Dominance: The Final Guidelines state that the Agencies “assess whether one of the merging firms has a dominant position based on direct evidence or market shares showing durable market power.” This replaces the more specific definition from the Draft Guidelines, which described specific types of direct evidence and a separate 30% market share threshold at which dominance would be presumed.
• Internal Growth versus Acquisitions (“build vs. buy”): The Final Guidelines soften the Agencies' claim that the antitrust laws reflect a preference for internal growth over acquisitions in all cases by limiting that asserted preference to concentrated markets: “In general, expansion into a concentrated market via internal growth rather than via acquisition benefits competition.”
• Industry Consolidation Trends: The Final Guidelines drop the suggestion that “even small increases of market share” could be sufficient to find a merger illegal if paired with a trend towards consolidation in the industry. Nevertheless, the Agencies will still consider a trend toward consolidation as “an important factor in understanding the risks to competition presented by a merger.”
• Presumptions of Illegality: The Final Guidelines replace warnings about what mergers “should not” do—which suggested those types of mergers were always illegal—with statements suggesting that the guidelines are setting a rebuttable presumption. Though these changes reduce the uncertainty—to a limited extent—about whether parties can rebut those presumptions, they also underscore that the Agencies seek to shift the burden onto the merging parties to prove the legality of their transaction; in court, the Agencies bear the burden of proving harm to competition.
• Examples: The Final Guidelines change some analytical descriptions and add examples of how specific analyses work in certain situations. For instance, the guideline regarding entrenchment contains an expanded discussion of entrenchment through the acquisition of nascent competitive threats and potential “ecosystem” competition.

The Final Guidelines Confirm an Expanded Set of Mergers Could Receive Scrutiny

The Final Guidelines confirm a significant expansion of the types of transactions that may be investigated by the Agencies compared to the approach taken by prior administrations. The most significant differences between the Final Guidelines and those issued by previous administrations include:

• Lowering the market concentration threshold at which the Agencies may presume that horizontal mergers are illegal;
• Reviving the long-abandoned “entrenchment” theory that conglomerate mergers (those with no vertical relationship or horizontal overlap) may be anticompetitive if they risk “entrench[ing] or extend[ing] a dominant position,” despite prior public statements by the Agencies disavowing the theory;
• Adding a discussion of serial acquisitions stating that the Agencies may assess the legality of a particular transaction with reference to the acquiring firm’s history of prior acquisitions;
• Introducing concepts related to multi-sided “platforms,” including references to competition between platforms, on platforms, and to displace a platform;
• Explicitly addressing the effects that a merger between buyers may have on competition for inputs, including labor;
• Discussing partial acquisitions (minority investments), which the Agencies say may allow partial owners to influence the target’s competitive strategy in an impermissible manner or give the partial owners access to the target’s competitively sensitive information;
• Seeking to infer the existence of a relevant antitrust market from direct evidence of substantial head-to-head competition between the merging parties, without having to specify “the precise metes and bounds” of the inferred market;
• Using transaction value as a proxy for the merged firm’s ability “to benefit from reduced competition,” not accounting for how a high transaction premium may reflect potential synergies or other procompetitive or competitively neutral motivations for the transaction.

The Final Guidelines are largely consistent with public statements by the Agencies’ current leadership—who have called for increased merger enforcement—and they suggest that the Agencies will continue to subject more, and more types, of transactions to investigations than prior administrations. As a result, companies considering mergers and other transactions should consult with antitrust counsel early in the planning process and, if antitrust risks are identified, anticipate a greater likelihood of a lengthy review.

If you have any questions concerning the material discussed in this client alert, please contact members of our Antitrust practice group. You can also learn about other recent developments in merger enforcement at Covington’s content hub on the topic.