On July 19, 2023, the Department of Justice Antitrust Division (DOJ) and Federal Trade Commission (FTC) (together, the Agencies) released a draft set of revised Merger Guidelines (the Revised Guidelines) to set forth the Agencies’ current view of the state of antitrust merger enforcement. The Revised Guidelines would replace the current Horizontal Merger Guidelines, which the Agencies adopted with broad bipartisan consensus in 2010, as well as the Vertical Merger Guidelines, which the Agencies adopted in 2020 but from which the FTC subsequently withdrew approximately one year later. (The DOJ has not yet withdrawn its support for Vertical Merger Guidelines, but in 2022 the DOJ indicated serious concerns with these guidelines.) The Agencies are releasing the Revised Guidelines in draft form, pending a 60-day period for public notice and comment. The comment period will run through September 18, and the Agencies will use the public comments “to evaluate and update the draft before finalizing the Guidelines.”

The Agencies’ revision of the current Merger Guidelines was widely anticipated. It comes more than two years after President Biden’s 2021 Executive Order on Promoting Competition in the American Economy which, among other directives, called on the Agencies “to review the horizontal and vertical merger guidelines and consider whether to revise those guidelines.” The draft revision also comes 18 months after the Agencies launched a joint public inquiry seeking comments on potential revisions to those guidelines.

While a revision to the existing Merger Guidelines was widely anticipated, the specifics of the Agencies’ reforms have not been known until now. A summary of the key proposed changes set forth in the Revised Guidelines is below:

• The Revised Guidelines would adopt a number of broad “structural presumptions,” which will impose broad rules of the road for mergers that apply across industries and regions. Most notably, the Revised Guidelines would presume that mergers are illegal under the following structural circumstances:
• A horizontal merger (i.e., a merger between competitors) that results in a firm with a market share above 30%, so long as the merger creates a change in Herfindahl-Hirschman Index (HHI, a measurement of market concentration) of at least 100 (which would be met by combining two firms with market shares of 29% and 2%, respectively).
• A horizontal merger that results in an overall market with an HHI above 1,800 (for frame of reference, a market with five equally sized competitors has an HHI of 2,000), and a change in HHI of at least 100.
• A vertical merger (i.e., a merger between buyer and supplier) where either firm has a market share of at least 50% in any relevant market.
• A merger that is neither vertical nor horizontal, if the merger may have the effect of “entrenching or extending” a “dominant” market position, defined as a market share of at least 30%.
• The Revised Guidelines would disregard “claims or commitments [by the merging parties] to protect or otherwise avoid harming their rivals that do not align with the [merged] firm’s incentives.” This runs counter to a strong trend by courts in merger challenges to credit structural or behavioral remedies negotiated by the merging parties, such as commitments to make divestitures or to continue supplying rivals with inputs.
• The Revised Guidelines would consider the “cumulative effect” of a series of small mergers, even where no individual merger in that series violates the antitrust laws on its own.
• The Revised Guidelines devote significant attention to competition for workers. For instance, the Revised Guidelines would take into consideration whether a merger might affect workers’ ability to bargain for higher wages, more generous benefits, or improved working conditions.
• The Revised Guidelines would direct the Agencies’ staffs to challenge certain mergers between firms that do not currently compete in a given market if one of the firms has “a reasonable probability of entering” that market at some unspecified point in the future. In a seeming inconsistency with this directive, however, the Revised Guidelines would only credit entry arguments by merging parties where entry is “so likely that no substantial lessening of competition is threatened by the merger” and “rapid enough to replace lost competition before any effect from the loss of competition due to the merger may occur.”
• The Revised Guidelines would narrow the circumstances under which parties could use efficiencies to defend a merger. Among other things, the Revised Guidelines would not credit efficiencies that “merely benefit the merging firms;” cost savings achieved through increased purchase volumes that reflect “an increase in monopsony power;” efficiencies calculations that depend “on the subjective predictions of the merging parties or their agents;” or efficiencies that the merging parties could achieve “by contract,” meaning through some relationship short of an outright merger.

In summary, the Revised Guidelines would represent a significant change to the Agencies’ longstanding policies and practices in merger reviews. Most notably, the proposal to replace fact-intensive industry and market analyses with broad-brush “structural presumptions,” and reducing reliance on market definition in favor of direct evidence of competition, could potentially represent a sea change in merger enforcement.

Assuming the Agencies adopt the Revised Guidelines after the notice and comment period, two key questions still remain:

1. Will the Revised Guidelines truly revolutionize the way that the Agencies’ staffs conduct merger investigations, or will at least some investigations continue to follow the Agencies’ traditional analytic approaches?
2. How will courts use the Revised Guidelines in merger litigations? In particular, will courts defer to the Revised Guidelines as objective statements of the state of modern antitrust law, entitled to deference as persuasive authority? Or, will courts instead read the Revised Guidelines to be advocacy statements that merely reflect the Agencies’ view of what the law ought to be?

Parties contemplating mergers should consider the implications of the Revised Guidelines in evaluating both deal and timing risk. As mentioned previously, there is a 60-day period to submit comments, which ends on September 18. The Agencies will then review the comments before releasing the finalized Revised Guidelines. Foley will continue to monitor these updates as they develop.

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