• The draft Merger Guidelines lower the market concentration threshold for the presumption that a merger is illegal.
• Deals that place combined market shares above 30 percent may also be presumptively unlawful.
• The draft Merger Guidelines identify concerns with serial acquisitions (e.g., a series of small acquisitions) and partial acquisitions.
• Other key changes include a new focus on mergers that entrench or extend a dominant position, eliminate potential competition, or harm workers.
• The draft Merger Guidelines reflect how DOJ and FTC currently assess mergers during the investigation phase but are not binding on the courts.

On July 19, 2023, the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) (collectively, the agencies) issued their long-awaited draft Merger Guidelines. The draft Merger Guidelines, once finalized, will replace both the 2010 Horizontal Merger Guidelines and the withdrawn 2020 Vertical Merger Guidelines. The 60-day public comment period expires on September 18, 2023.

The draft Merger Guidelines describe how the agencies identify mergers that may violate the federal antitrust laws. They are intended to respond to “modern market realities” and to provide transparency and guidance to the public, business community, practitioners, and courts regarding the “factors and frameworks” the agencies consider when evaluating mergers. Although the Merger Guidelines are not legally binding, judges have frequently relied on prior versions in their decision making.

The agencies outline 13 core principles that are referred to as “guidelines.” The table below describes these 13 core guidelines.

Unlike the prior versions, the draft Merger Guidelines cite to older Supreme Court and appellate court decisions for support. Key deviations from the prior Horizontal Merger Guidelines and Vertical Merger Guidelines include:

• Significantly lower post-acquisition market concentration threshold for a presumptively illegal merger. The draft Merger Guidelines lower the threshold for a highly concentrated market from a post-merger 2,500 Herfindahl-Hirschman Index (HHI) to 1,800. If the change in the HHI is greater than 100, the merger is considered presumptively illegal. Under this significantly lower market concentration threshold, a merger in a market with six or fewer companies may be presumptively illegal.
• New presumption against mergers with a post-acquisition market share of greater than 30 percent. The draft Merger Guidelines state that a merger that creates a firm with a market share greater than 30 percent and that significantly increases market concentration (a change in HHI greater than 100) presents “an impermissible threat of undue concentration regardless of the overall level of market concentration.”
• Substantial analysis devoted to mergers that eliminate potential competition. The draft Merger Guidelines devote significantly more attention than the prior guidelines to mergers that may eliminate “actual potential competition” or “perceived potential competition.”
  Actual potential competition. The agencies will analyze both objective and subjective evidence to determine the “reasonable probability” that one or both merging firms would enter the relevant market and whether the new entry would offer a substantial likelihood of de-concentrating the market or other procompetitive effects.
  Perceived potential competition. The agencies are also concerned that the elimination of a perceived potential entrant may lessen competition because it “can prompt current market participants to make investments, expand output, raise wages, increase product quality, lower product prices, and take other procompetitive actions.” To determine “whether the acquisition of a perceived potential entrant may substantially lessen competition, the Agencies consider whether a current market participant could reasonably consider one of the merging companies to be a potential entrant and whether that potential entrant has a likely influence on existing competition.”
• Enhanced vertical merger enforcement analysis; greater than 50 percent foreclosure is presumptively illegal. A vertical merger is a merger between firms that operate at different levels of a supply or distribution chain. The draft Merger Guidelines identify significant concerns with a merger where the perceived share of any vertical foreclosure is greater than 50 percent. As defined in the draft, the foreclosure share is “the share of the related market that is controlled by the merged firm, such that it could foreclose rival’s access to the related product on competitive terms.” The related market is defined “around the related product,” which is “the product, service, or customer that rivals use to compete” in the relevant market. Even if the foreclosure share is below 50 percent, the draft Merger Guidelines indicate that there may still be concerns if there is a trend toward vertical integration, the nature and purpose of the merger is to foreclose rivals, the relevant market is already highly concentrated, or the merger increases barriers to entry.
• Concerns with a merger that could entrench or extend a dominant position (30 percent market share). The draft Merger Guidelines are concerned with any merger that entrenches or extends a dominant position in a market. In determining whether one of the parties to a merger already has a dominant position, the agencies analyze whether “there is direct evidence that one or both merging firms has the power to raise price, reduce quality, or otherwise impose or obtain terms that they could not obtain but-for that dominance” or one of the merging parties has a market share of 30 percent or greater. The draft Merger Guidelines also analyze “the risk that a merger could enable the merged firm to extend a dominant position from one market into a related market” and substantially lessening competition in the related market. Examples include where the merged firm could engage in “tying, bundling, conditioning, or otherwise linking sales of two products, excluding rival firms, and ultimately substantially lessening competition in the related market.”
• Serial or roll-up acquisitions, rather than a single acquisition, may be anticompetitive. The draft Merger Guidelines identify concerns with “a firm that engages in an anticompetitive pattern or strategy of multiple small acquisitions in the same or related business lines” even if no single acquisition would violate the antitrust laws. The agencies are concerned that “a cumulative series of mergers” may substantially lessen competition or tend to create a monopoly.
• Labor markets and worker issues may be adversely impacted by mergers. Labor market issues were not addressed in prior versions of the Merger Guidelines. The draft Merger Guidelines are concerned with mergers that may reduce competition between firms that compete for the same workers. A reduction in competition for specific groups of workers (i.e., a reduction in labor market competition) “may lower wages or slow wage growth, worsen benefits or working conditions, or result in other degradations of workplace quality.”
• Partial/minority ownership may raise significant competitive concerns. The draft Merger Guidelines note that “[p]artial acquisitions that do not result in control may nevertheless present significant competitive concerns.” Partial acquisitions can lessen competition by “giving the partial owner the ability to influence the competitive conduct of the target firm,” by “reducing the incentive of the acquiring firm to compete,” or “by giving the acquiring firm access to non-public, competitively sensitive information from the target firm.”

The impact of the draft Merger Guidelines on courts remains to be seen. Although the draft extensively cites to older U.S. Supreme Court and appellate court decisions from many decades ago, it does not address recent losses by the DOJ and FTC, including United States v. United States Sugar Corp., United States v. United HealthGroup, Inc., United States v. Booz Allen Hamilton Holdings Corp., FTC v. Meta Platforms, Inc., and FTC v. Microsoft Corp. Inconsistencies between this case law and the draft Merger Guidelines likely will be resolved in favor of the case law.

The press release announcing the proposed Merger Guidelines may be accessed by clicking on the links below:
FTC and DOJ Seek Comment on Draft Merger Guidelines