Overview
On December 18, 2023, the DOJ and FTC jointly released the final 2023 Merger Guidelines that describe how the agencies will evaluate proposed merger and acquisition transactions. Despite significant editing, and calls from industry to moderate the guidelines, the agencies essentially doubled down on their vision, which we have previously described, promising a more aggressive review of future transactions while providing limited concrete guidance for merging companies.
Changes From Draft Guidelines
We summarize some of the changes made between the draft guidelines and the final version. None of these, though, are major revisions. Beyond what is highlighted here, most of the revisions are wordsmithing and the addition of more contemporary case citations, perhaps in response to criticism that the case law cited was all very old.
- Multimarket Contact Theory. The agencies have inserted into Guideline 3 an additional example of a situation that may give rise to an anticompetitive alignment of incentives that can be a secondary factor to support a finding of coordinated effects. Guideline 3 now states that if a merger results in a situation in which the merged firm competes with another firm in multiple markets ("multi-market contact"), firms might have an incentive to compete less aggressively in some markets in anticipation of reciprocity by rivals in other markets.
- Weakened Threshold for Foreclosure in Vertical Mergers. Draft Guidelines 5 and 6 have been combined into new Guideline 5, which focuses on vertical merger issues. The agencies removed the bright-line presumption of illegality where one merging party has a 50% share of a "related market" into which the merging counterparty sells or buys. Instead, the text states that the presumption may be found if the merged firm is approaching or has monopoly power over the related product, and the related products is competitively sensitive. And the 50% share figure resurfaces in footnote 30, albeit with slightly weaker language stating that the agencies "will generally infer" a violation if the 50% threshold is crossed.
- No Dominant Firm Threshold. Deleted from Guideline 6 (which was Guideline 7 in the draft) is the language defining a 30% market share as constituting a "dominant position." Instead, the agencies will now define a dominant position on the basis of direct evidence or market shares showing durable market power.
- Bargaining Leverage Arms Race. In Guideline 7 (formerly Guideline 8), the agencies added a new example of a trend toward consolidation: an "arms race for bargaining leverage." This is meant to capture a scenario in which firms merge to gain leverage over other firms with which they transact, which encourages those firms in turn to merge to get bigger as a counterweight to the first firm, leading to the "arms race." There is little precedent for this arms race theory, and in a document full of footnotes, there are no citations supporting this theory. It remains to be seen to see how the agencies will apply this theory in practice.
- Catch-All Provision. While no longer identified as a guideline, the text of the much-maligned former Guideline 13, a catch-all provision that essentially asserted wide leeway for the agencies to bring a challenge for any reason, remains intact in the text at the end of Section 2 of the Guidelines.
Overall, while there are a few changes, the Merger Guidelines substantively remain almost unchanged from the draft. Mergers will receive a more searching inquiry than under previous iterations, with additional presumptions against mergers and what is intended to be a renewed focus on protecting competition.
Impact of the New Guidelines
The release of the new Merger Guidelines continues and furthers the more aggressive posture of the agencies. As we noted in prior communications, the most meaningful changes from the 2010 Horizontal Merger Guidelines are the lower HHI thresholds for a presumption of illegality, the introduction of a market-share-based presumption of illegality, and the suggestion that a vertical merger in which one party has a 50% share of a related product may also be presumed to be unlawful. As we earlier suggested, the new Merger Guidelines presage plenty of additional scrutiny for proposed transactions.
