On December 18, 2023, the Federal Trade Commission (FTC) and Department of Justice Antitrust Division (DOJ) (together, the “agencies”) jointly released their final revised 2023 Merger Guidelines, reflecting modest adjustments from the proposed guidelines the agencies published for public comment this past summer. 

The new Merger Guidelines constitute a substantial overhaul of the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines they replace, reflecting the stated goals of President Biden’s appointed leaders at DOJ and FTC to correct what they assert has been four decades of under-enforcement of the antitrust laws governing mergers. Although some language adjustments have softened what many observers regarded as an overly proscriptive tone in the original proposed Guidelines, the final version nonetheless stakes out an analytical approach significantly more hostile toward mergers than the agencies’ previous sets of Guidelines, reflecting an overall skepticism of even low-to-moderate levels of market concentration and significantly lowering the standards by which the agencies say they will conclude a merger when it is substantially likely to lessen competition.  

The enforcement approach outlined in the Merger Guidelines serves to underscore the emerging reality that the agency process itself serves the goal of DOJ and FTC leadership to block or deter more deals “in the boardroom”—before they ever reach the agencies—by increasing uncertainty and the risk of expensive, time-consuming, and burdensome investigations. 

The Purpose of Merger Guidelines 

The DOJ and FTC jointly publish Merger Guidelines to outline how they assess the potential for a merger to harm competition under antitrust laws. The first Guidelines were published by the DOJ in 1968 and have since undergone several incremental revisions, primarily to incorporate learnings from legal precedent and economic tools, with the ultimate goal of increasing transparency for businesses in assessing antitrust risk. While the Guidelines are not a legal authority by which the agencies or merging parties are bound, courts often evaluate and cite the Guidelines because of their foundation in legal precedent and widely accepted antitrust theories of harm.  

The previous set of Merger Guidelines was released in 2010 for horizontal mergers, and 2020 for vertical mergers, and largely was the culmination of bipartisan views on analyzing mergers under existing antitrust law and policy. Upon taking office, however, FTC Chair Lina Khan announced the FTC’s withdrawal from the 2020 Vertical Merger Guidelines, and jointly announced with DOJ Assistant Attorney General Jonathan Kanter the intention to rewrite and revamp the 2010 Horizontal Merger Guidelines. This past summer, the agencies delivered on that promise by publishing new proposed draft Merger Guidelines addressing both horizontal and vertical mergers. 

Although the new Merger Guidelines are certainly informative in terms of revealing the enforcement priorities and approach adopted by the current administration, what is less certain is how the new Guidelines will be regarded by the courts. The new Guidelines seek to deprecate much of the analytical framework that has guided the courts over the last 40 years, raising questions about the extent to which courts will continue to accord the agencies’ Guidelines significant deference. 

Back to the Future 

The final revised Merger Guidelines introduce some new enforcement concepts, revive some old approaches, and expand the reach of existing tools for antitrust enforcement. Highlights include: 

• A Preference for Presumptions: Historically, the agencies have used the Herfindahl-Hirschman Index (HHI) to measure market concentration based on market shares, and have established certain thresholds above which the agencies will make a rebuttable presumption that a transaction is unlawful, as set forth in previous iterations of the Guidelines. The new Merger Guidelines, however, establish significantly lower thresholds for that determination, and add a new presumption based principally on the combined firms’ market share.

  Under the new Merger Guidelines the agencies will presume a merger is illegal where the post-merger HHI is greater than 1,800 (which would represent a market less concentrated than, for example, any market with five participants of equal size) and the increase in concentration is 100 or more. By contrast, the 2010 Horizontal Merger Guidelines established that presumption to apply only when the post-merger HHI was 2,500 or greater, and when the increase in HHI as a result of the deal was 200 or more. The Merger Guidelines also establish a new “presumption of illegality” where a merged firm’s combined market share exceeds 30% (regardless of overall market concentration) if the deal results in an increase in HHI of 100 or more.

  Building in such aggressive bright-line presumptions is a sharp departure from recent history, in which enforcers had de-emphasized mechanical reliance on structural metrics in favor of a dynamic, evidence-based analysis of the relevant market. It also cuts against the agency leadership’s own rhetoric about the need to modernize enforcement approaches to adapt to changes in “market realities” in the new economy, given that this kind of deference to structural analysis—and the 1,800 HHI presumption reflected here—was first set forth in the 1982 Merger Guidelines. Taken together with other provisions of the Guidelines that give the agencies wide latitude to define the relevant market, and that establish higher bars for evidence to rebut the structural presumptions, these measures signal that the agencies intend to give little room for larger players in a particular space to grow through M&A. 

• Killer Acquisitions: The Merger Guidelines place great emphasis on the agencies’ intent to examine whether a transaction would eliminate a “potential entrant” or current competitive pressure from a “perceived potential entrant,” expanding significantly upon the prior Guidelines’ treatment of these potential harms. This increased emphasis is consistent with criticism by Lina Khan and others of the perceived lack of sufficiently rigorous antitrust enforcement in deals such as Facebook’s 2012 acquisition of Instagram and its 2014 acquisition of WhatsApp, in which Facebook is alleged to have eliminated nascent threats to its social media dominance. The agencies’ suspicion of acquisitions involving potential entrants and perceived potential entrants has already manifested itself in agency enforcement actions, most notably in the FTC’s ambitious—but ultimately failed—challenge to Meta’s acquisition of virtual reality gaming company Within. Despite the loss, Chair Khan explained she viewed it as a success in getting the courts to acknowledge that these theories can apply in modern tech markets. The expansion of the Guidelines’ treatment of this subject may provide continued opportunity for the theories to be tested in court.  

• Targeting Private Equity (PE) and Serial Acquirers: “Roll-up” acquisitions by PE firms (i.e., the acquisition of several players in the same or adjacent spaces to achieve market power), or even simply acquisitions by PE firms in consumer-facing industries, have been a subject of criticism by progressive commentators and academics, as well as serving members of the Biden administration, for some time. The new Merger Guidelines set forth a framework that addresses this perceived problem, noting that the agencies will address the cumulative impact of serial acquisitions as opposed to just the current transaction in front of them. The Guidelines further explain that the “agencies may examine a pattern or strategy of growth through acquisition by examining both the firm’s history and current or future strategic incentives,” which appears plainly targeted at PE firms, whose “strategic incentives” are often seen by agency leadership to be at odds with investing in portfolio companies to make them healthy long-term competitors. 

• Collapse of Vertical and Horizontal Distinctions: The word “horizontal” only appears in the new Guidelines twice (both times referencing the 2010 Horizontal Merger Guidelines). Another word that appears twice: “ecosystem.” This is notable because traditional antitrust theory recognizes that horizontal and vertical mergers are fundamentally different. Vertical integration between firms is much more likely to generate efficiencies and other benefits for consumers and the overall competitive process. In contrast, a horizontal merger by definition leads to elimination of an independent competitor, and the potential benefits of such a transaction may be less apparent. Current agency leadership, however, has attempted to eliminate the distinction between mergers with competitors versus non-competitors, focusing instead on the key inputs that the merged firm may control, or the dynamic of the larger “ecosystem” and the role of “dominant” firms in that ecosystem.   

• Shifting Focus to Labor Markets: The revised Guidelines confirm that the agencies will consider, and include as a key investigatory issue, the competitive effects of concentration between companies that compete for labor. The Guidelines focus on identifying firms with monopsony power (i.e., market power as a buyer, as opposed to a seller) and the negative outcomes that can result for workers where there is a lack of competition for buyers of their labor. The Guidelines further explain the agencies’ assessment of a deal’s competitive impacts will include examining the individual needs of workers (such as limits in geographical scope for jobs as competitive substitutes), the high switching costs associated with getting a new job (e.g., finding, applying for, and interviewing for a job), and the unique matching process of the job market for employees and employers (e.g., agreeing on salary, finding work they value). As a result of these factors, the Guidelines note “[t]he level of concentration at which competition concerns arise may be lower in labor markets than in product markets, given the unique features of certain labor markets.” It is unclear from the Guidelines how the agencies intend to use existing antitrust law and economics to challenge a merger solely for harm to a labor market where no monopsony power exists. 

• Targeting the Tech Industry: The revised Guidelines also address multi-sided markets and platforms, which would include many companies offering digital services, buyer/seller platforms, and social media companies. The Guidelines emphasize that the agencies intend to examine any aspect of competition related to the platform (e.g., between platform operators or participants), including whether there are any “conflicts of interest” that would harm competition (i.e., where a platform operator is also a platform participant). “Conflicts of interest” as an antitrust theory of harm noticeably lack any precedential support in the Guidelines; nonetheless, this theory will likely be put to the test if the FTC challenges Amazon’s acquisition of iRobot. Although platform competition is not new (e.g., a brick-and-mortar shopping mall also brings together buyers and sellers), the new Guidelines reflect the proliferation of digital platforms and two-sided markets, and underscore that the agencies’ attention will clearly be focused on the tech industry in this regard.  

• Skepticism of Merger Benefits: The Guidelines lack clarity particularly with respect to what constitutes a merger efficiency or other benefit, and when such positive effects can be invoked as a procompetitive defense. This is consistent with the overall tone of skepticism toward mergers in general, and the idea that a horizontal merger can produce benefits to society beyond just potentially lower prices to consumers. Instead of setting forth what will be credited in this regard, the Guidelines more or less simply set forth a list of what the agencies will reject as procompetitive justifications for any market concentration.  

Don’t Give Up the Ship 

The new Merger Guidelines are not the law, though leadership at the agencies intends for them to influence the law over time as more transactions are tested in court, and as more deal parties abandon their transactions in the face of increased costs, delays, and uncertainty. 

However, for now the law remains substantially the same as it has been for decades. Under Biden’s administration (January 2021 to present), the FTC has not blocked a single merger in court. Rather, it has lost two cases. The DOJ has only blocked one, and it was a traditional horizontal merger (Penguin Random House/Simon & Schuster), and lost three cases. Despite this, 19 deals have been abandoned that were under investigation by the FTC (10 after a complaint, nine prior to a complaint), and six deals were abandoned that were under investigation by the DOJ (two after a complaint, four prior to a complaint). The agencies are by and large only “winning” via abandonments and deal deterrence. What this means is that parties who are confident that their deals are lawful, and who have an appetite to hold their ground, can still get deals done within the bounds of actual, existing antitrust law. 

Key Takeaways 

• The new Merger Guidelines embody what has been agency practice at DOJ and FTC for some time under the leadership of Jonathan Kanter and Lina Khan and underscore the increased uncertainty for M&A activity that has marked their tenures. 
• Agency leaders, particularly FTC Chair Lina Khan, have not been shy about their actions and public statements being purposefully undertaken, at least in part, to generate a chilling effect on M&A activity. Companies should recognize this and should not decline to do good deals solely on this basis.
• However, companies undertaking strategic M&A should nonetheless proceed with “eyes wide open” to the reality that for many deals the antitrust process has gotten, and will remain for the time being, significantly more burdensome and difficult than it has been historically. 
• For the next deal, M&A teams should be prepared to:
  • Assess antitrust risk early and work with antitrust counsel to consider any horizontal or non-horizontal issues (including those related to adjacent markets, multi-sided markets, and labor markets) that may arise from a potential transaction (this is particularly true in the case of PE and tech companies, which face heightened scrutiny under these Guidelines). 
  • Carefully consider risk allocation and timing in transaction agreements to account for the agencies’ current appetite for enforcement, and their aversion to remedies like divestitures. 
  • Prepare antitrust strategies early to minimize potential delays. 
  • Implement and follow through on careful document creation guidelines, particularly for deals that have some potential for a prolonged investigation in which the agencies will receive access to vast amounts of documents and information.