U.S. Antitrust Agencies Propose Sweeping Changes to Merger Guidelines – 5 Key Things You Need to Know

The Proposed Merger Guidelines represent the DOJ's and the FTC's aggressive scrutiny of mergers. As one of the most important reflections of policy the Antitrust Agencies use to analyze transactions, the Proposed Guidelines—once finalized—reflect the clear shift in recent merger enforcement in the United States.

On July 19, 2023, the US Department of Justice ("DOJ") Antitrust Division and US Federal Trade Commission ("FTC," and collectively, the "Antitrust Agencies") released a draft update that would overhaul the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines (collectively, the "Merger Guidelines").¹ The Proposed Merger Guidelines ("Proposed Guidelines") reflect the DOJ's and the FTC's aggressive scrutiny of proposed mergers. As one of the most important reflections of policy the Antitrust Agencies use to analyze transactions, the Proposed Guidelines—once finalized (potentially as early as Q4 2023)—reflect the clear shift in recent merger enforcement. The Proposed Guidelines are open for public comment for 60 days, until September 18, 2023.

The Proposed Guidelines differ from prior releases in several substantive ways. Instead of separate guidelines for horizontal and vertical mergers, they combine enforcement priorities into one comprehensive set of 13 guidelines. They reflect the Antitrust Agencies' desire to view markets and competition in a multi-dimensional manner, creating new theoretical approaches or reviving seemingly dated avenues to challenge more mergers, especially those deemed as ecosystem-driven, concentric, or conglomerate mergers.²

Prior Merger Guidelines generally reflected existing Antitrust Agency practice, but the Proposed Guidelines establish an expansive enforcement framework that would potentially push the boundaries of prior practice by adopting new theories of anticompetitive harm. The Proposed Guidelines are the first version to cite antitrust cases (some of which are dated) in an attempt to provide a roadmap of where the Antitrust Agencies hope to drive antitrust enforcement. It remains to be seen where the courts would land in their acceptance of the Proposed Guidelines considering this clear shift away from consensus.

The Five Things You Need To Know

1. Greater Than 30% Market Shares are Presumptively Unlawful

The Proposed Guidelines significantly alter the structural presumptions used to identify mergers that may be found to substantially lessen competition, and these changes would lead to an increase in the number of transactions that could be found anticompetitive.³ Notably, the Proposed Guidelines suggest that a merger would be presumptively unlawful if it has a post-merger Herfindahl-Hirschmann Index ("HHI") of 1,800, and an increase in the HHI of 100 from pre-merger levels. The new thresholds would represent a significant reduction to the existing thresholds (from the 2010 Merger Guidelines) of 2,500 and 200, respectively.⁴

The Proposed Guidelines also add that any merger with a market share over 30%, and a change in HHI of 100 from pre-merger levels, would be presumptively unlawful.⁵

The proposed changes create a low burden for the Antitrust Agencies to find a structural presumption of illegality. In a hypothetical market with 10 competitors with disaggregated market shares of 16%, 15%, 10%, 10%, 10%, 9%, 8%, 8%, 7%, and 7%, the transaction would be presumptively unlawful where competitors No. 1 and No. 2 merge because the combination would result in a market share greater than 30% and an HHI index change of 480. This would be the case in any merger with similar market share scenarios.

Importantly, the Proposed Guidelines make prominent the 30% market share presumption from the U.S. Supreme Court's 1963 decision in United States v. Philadelphia National Bank.⁷ Although the Philadelphia National Bank structural presumption framework continues to be accepted by U.S. federal courts, many have rebuked the 30% figure as merger enforcement evolved over the past 60 years.⁸ Subsequent case law has called into question whether an alleged market share threshold would be conclusive proof of a merged firm's market power.⁹

2. New Frameworks for Digital Markets, Nascent Competitors, Innovation

The Proposed Guidelines directly address issues commonly associated with recent technology and digital transactions.

• Multi-sided platforms. The Proposed Guidelines address multi-sided markets and platforms, including many companies offering digital services, buyer/seller platforms, and social media companies. The Proposed Guidelines would apply even if the competitive concerns do not arise on all sides of the proposed market, i.e., "the [Antitrust] Agencies [will] consider competition between platforms, competition on a platform, and competition to displace the platform."¹⁰
• Nascent competitors. Mergers that would eliminate a "potential entrant" into a concentrated market could substantially lessen competition or tend to create a monopoly. To address this risk, the Proposed Guidelines outline a framework to consider whether either merging party had a reasonable probability of entering a market (actual potential entrants), and whether one of the merging parties could reasonably be considered a potential entrant (perceived potential entrants), and if the elimination of this potential competition would likely influence existing competition.¹¹
• Moat-building strategies. The Proposed Guidelines target transactions that would give merging parties the ability and incentives to weaken or exclude rivals, e.g., by limiting or degrading access to certain services or products.¹² Antitrust Agencies would also seek to limit transactions where the merging parties would have continued access to a rival's competitively sensitive information because of the merger and assume that such information could be misused by the merging parties.
• Vertical foreclosure. The Proposed Guidelines identify mergers that result in a foreclosure share above 50% in a related market (i.e., an input product used by competitors) or those below a 50% foreclosure share that exhibit certain "plus factors" as "a sufficient basis to conclude that the effect of the merger may be to substantially lessen competition."¹³ Plus factors include whether there is a trend toward vertical integration; what the nature and purpose of the merger are; whether the relevant market is already concentrated; and whether the merger increases barriers to entry.

3. Focus on Monopsony and Labor Markets

Unlike prior Merger Guidelines, the Proposed Guidelines, for the first time, make clear that protecting competition in labor markets is a top enforcement priority.¹⁴ FTC Commissioner Alvaro M. Bedoya released a statement on the Proposed Guidelines solely addressing the importance to the Antitrust Agencies of labor markets in merger review, noting that "labor markets are not excepted out of antitrust."¹⁵

According to the Proposed Guidelines, a merger of competing buyers of labor (employers) could substantially lessen competition by (i) eliminating competition between the merging buyers; (ii) increasing coordination among the remaining buyers post-merger; (iii) accelerating a trend towards undue concentration; or (iv) extending the position of a dominant buyer. The Proposed Guidelines state that any reduction in labor market competition may lead to anticompetitive harm to labor including lower wages, slower wage growth, and degradation of workplace quality, forcing workers to be pushed out of their jobs and into the job search market.

4. Greater Scrutiny of Private Equity Sponsors and Institutional Investors

Given recent Antitrust Agency leadership's speeches and comments, it is not surprising that the Proposed Guidelines reflect a greater antitrust scrutiny of private equity and other institutional investors.¹⁶ While private equity sponsors are not identified explicitly in the Proposed Guidelines, several provisions will have direct impact on private equity sponsors and target successful M&A strategies employed by private equity (and many others). The Proposed Guidelines take aim at "an anticompetitive pattern or strategy of multiple small acquisitions in the same or related business lines,"¹⁷ even if no single acquisition on its own raises competitive concerns. According to FTC Chair Lina Khan, "[a] variety of sectors have seen firms consolidate markets through roll-up strategies that rely on a series of smaller acquisitions."¹⁸ The Proposed Guidelines describe the steps the Antitrust Agencies would use to identify such "cumulative" strategies, including examining merging parties' history of M&A activity (both consummated and unconsummated acquisitions) and current or future activity described in ordinary course business documents and plans.

The Proposed Guidelines also increase the spotlight on minority acquisitions, including cross-ownership (holding interests in competitors) and common ownership (where individual investors hold non-controlling interests in firms that have a competitive relationship). The Proposed Guidelines highlight that the Antitrust Agencies would examine (1) the acquirer's ability to influence competitive decisions of the target; (2) whether the acquirer will have a reduced incentive to compete because of the acquisition; and (3) whether the acquisition will give the acquirer access to non-public, competitively sensitive information from the target firm.¹⁹

5. "Dominant" Firms Will Face New Hurdles

In a shift toward positions popular in other antitrust jurisdictions such as the European Union,²⁰ under the Proposed Guidelines, if the Antitrust Agencies find that a firm is "dominant" they will have wide latitude to challenge any proposed acquisition that may "entrench or extend" the firm's dominant position regardless of whether the acquisition would trigger the proposed structural presumptions or even whether the target is a competitor in the buyer's core market(s). Importantly, the Proposed Guidelines take a broad view of dominance by looking to "whether (i) 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 (ii) one of the merging firms possesses at least 30 percent market share."²¹

The Proposed Guidelines announce several other shifts in antitrust policy—some are consistent with past practice but many others seek to strengthen the presumptions of illegality under Section 7 of the Clayton Act.

• Mergers Involving Substantial Competition. The Proposed Guidelines would target mergers involving "substantial competition," such as transactions involving head-to-head competitors; even where market shares are difficult to measure or understate the significance of the merging parties.²² In contrast, the 2010 Guidelines took into account the realities of competitive dynamics.
• Mergers that Increase Coordination Risk. The Proposed Guidelines outline primary factors and secondary factors to assess whether a merger would increase the risk of coordination among the remaining competitors post-transaction. While generally consistent with the 2010 Merger Guidelines, there are some differences. Notably, the Antitrust Agencies would presume that the elimination of a maverick would indicate coordinated effects.²³
• Efficiencies. The Proposed Guidelines suggest a particularly high bar for merging parties to demonstrate cognizable efficiencies.²⁴ The Proposed Guidelines add an entirely new prong requiring cognizable efficiencies to not result from worsening trade terms with the merged firm's trading partners, i.e., the elimination of increased bargaining leverage as an efficiency. The Proposed Guidelines also claim (without any support) that "[p]rocompetitive efficiencies are often speculative and difficult to verify and quantify, and efficiencies projected by the merging firms often are not realized."²⁵ Practically, since antitrust investigations occur before a merger closes, any procompetitive efficiencies that the merging parties offer are necessarily based upon projections. Under the proposed framework, it would be difficult to envision the Antitrust Agencies crediting any procompetitive efficiencies as rebuttable evidence showing that no substantial lessening of competition is threatened by the merger.

Practical Implications: What Does This Mean if You Want to Merge Today?

It is likely that the FTC's and the DOJ's Proposed Guidelines will be finalized with little to no changes. The Antitrust Agencies already have moved to significantly alter the framework of the past few decades of merger enforcement—and these Proposed Guidelines clearly signal an appetite for stronger enforcement, more complicated analyses, and likely longer investigation periods.

So, what does this mean for your next merger?

• Assess Antitrust Risk Early. A deep dive and competitive assessment early in merger discussions enables the parties to anticipate and plan for heightened scrutiny.
  • Companies should work with antitrust counsel early to prepare a pre-filing antitrust risk assessment that considers vertical, adjacent, and horizontal competitive issues arising from a potential transaction. By front-loading the analysis, advisers can engage quickly with the Antitrust Agencies if questions do arise.
  • U.S. antitrust counsel can help navigate the stormy waters early. This is especially important considering the increased obligations created not only by the Proposed Guidelines, but the companion changes to the HSR filing obligations.
• Consider Risk Allocation and Timing in Transaction Agreements. Merging parties should consider how the Proposed Guidelines will affect the allocation of antitrust risk and timing in merger agreements.
  • Litigation is now a more viable path to merger clearance and should be considered when assessing the time needed to consummate a transaction. The Antitrust Agencies have signaled their intent to litigate more and have backed that up in recent challenges. The Proposed Guidelines will invite greater scrutiny than before from the Antitrust Agencies, which will provide them with more opportunities for legal challenges.
• Consider Labor and Worker Issues. Merging parties will have to consider and anticipate the impact on workers, labor, and unions from a potential transaction. The Antitrust Agencies already are increasingly scrutinizing potential labor market impacts during merger investigations in part by seeking evidence directly from workers and representatives from labor organizations and unions during merger investigations.²⁶ This focus on labor markets will only increase under the Proposed Guidelines. It will be incumbent on merging parties to show evidence of how a potential transaction may impact workers.
• Exercise Awareness in Document Creation. The Proposed Guidelines address the value of documentary evidence. It will be important to use care when drafting documents to accurately describe competitors, competition, and markets. Private equity sponsors should also exercise care when discussing M&A activity in the same industry.
• Prepare for Cross-Agency Cooperation Beyond the DOJ and the FTC. U.S. federal agencies, including the U.S. Department of Labor, the Federal Energy Regulatory Commission, and Office of the Comptroller of the Currency, as well as State Attorneys General, already share information about transactions and inter-agency cooperation is expected to continue.²⁷ Merging parties should assume that a filing to one agency can be shared with another agency.
• Unique Implications for Private Equity. It is more important than ever for private equity to work early with antitrust counsel to take stock of investments and M&A strategy in particular industries. This includes both acquisitions of control and acquisitions of less than control.
• Unique Implications for Technology Companies. Companies in technology or digital industries should carefully analyze acquisitions even if in adjacent, non-horizontal, or non-vertical industries. The Proposed Guidelines outline the Antitrust Agencies' framework and tools through which they will scrutinize and challenge acquisitions they view as "dominant" companies. Similar transactions previously were difficult to challenge under the last several decades of agency practice and case law, but as recent attempts by the Antitrust Agencies have shown, they are not afraid to bring untested theories to court.²⁸

When Could the Proposed Guidelines Go Into Effect?

The Proposed Guidelines are open for public comment for 60 days, until September 18, 2023. After that period, the Antitrust Agencies will need to consider and analyze any comments received, and the final Proposed Guidelines could possibly go into effect in early Q1 2024, but it could be by the end of 2023. Time will tell whether the Proposed Guidelines withstand the 2024 electoral cycle and if they are rejected by the U.S. courts as an overly aggressive statement of enforcement policy.

_{1 The Proposed Merger Guidelines (“Proposed Guidelines”) for public comment are available at https://www.ftc.gov/system/files/ftc_gov/pdf/p859910draftmergerguidelines2023.pdf.
2 In announcing the Proposed Guidelines, Commissioner Rebecca K. Slaughter claimed that the horizontal and vertical distinctions are “artificially constructed mathematical categories [that] do not accurately capture the full set and complexity of relationships between merging parties that can cause a transaction to run afoul of the antitrust laws.” Statement of Commissioner Rebecca Kelly Slaughter, joined by Chair Lina M. Khan and Commissioner Alvaro M. Bedoya Regarding FTC-DOJ Proposed Merger Guidelines Commission File No. P234000 at 1 (July 19, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/p234000_bks_statement_re_draft_merger_guidelines_final.pdf.
3 Proposed Guideline No. 1.
4 Under the 2010 Merger Guidelines, a post-merger HHI of 1800 would be considered a “moderately concentrated merger.” 2010 Horizontal Merger Guidelines, § 5.3 (p. 19).
5 The proposed changes would return agency practice to the pre-2010 standards that were in place under the 1982 Merger Guidelines and suggest that a 30% or greater market share would be sufficient to block a merger under Section 7 of the Clayton Act. 1982 Horizontal Merger Guidelines, § III(A)(1); Proposed Guideline No. 1.
6 2010 Horizontal Merger Guidelines, § 4.
7 United States v. Phila. Nat’l Bank, 374 U.S. 321, 364 (1963) (“Without attempting to specify the smallest market share which would still be considered to threaten undue concentration, we are clear that 30% presents that threat.”).
8 United States v. Baker Hughes, Inc., 908 F.2d 981, 990 (DC Cir. 1990) (then-D.C. Circuit Court Judge Clarence Thomas) ("[a]lthough the Supreme Court has not overruled these section 7 precedents, it has cut them back sharply. . . . General Dynamics began a line of decisions differing markedly in emphasis from the Court's antitrust cases of the 1960s."); Baker Hughes, 908 F.2d at 983 n.3 (permitting merger resulting in greater than 76% post-closing market share); Fed. Trade Comm’n v. Butterworth Health Corp., No. 96-2440, 1997 U.S. App. LEXIS 17422, at *6 (6th Cir. July 8, 1997) (permitting merger resulting in greater than 65% post-closing market share); United States v. Waste Mgmt. Inc., 743 F.2d 976, 980-81 (2nd Cir. 1984) (permitting merger resulting in greater than 48% post-closing market share); United States v. SunGard Data Sys., 172 F. Supp. 2d 172, 181 (D.D.C. 2001) (permitting the merger of two of the three major disaster recovery data firms resulting in the Government's view in a "duopoly in which the merged firm would control approximately 71 percent of the market, and IBM would control almost all of the remainder").
9 See, e.g., Baker Hughes, 908 F.2d at 990.
10 Proposed Guideline No. 10. The Proposed Guidelines acknowledge in a footnote that a relevant market may encompass both sides of a two-sided platform for a platform involving simultaneous transactions on either side. Proposed Guidelines at 24 n. 76 (citing Ohio v. Am Express, 138 S. Ct. 2274, 2280 (2018) (holding that American Express’ provisions in its merchant contracts that prohibited merchants from discouraging customers’ American Express card use were lawful)). Nevertheless, the Proposed Guidelines suggest that this characteristic is “not present” for many two-sided or multi-sided platforms. Id.
11 Proposed Guideline No. 4.
12 Proposed Guideline No. 5.
13 Proposed Guideline No. 6.
14 Proposed Guideline No. 11.
15 Statement of Commissioner Alvaro M. Bedoya, joined by Chair Lina M. Khan and Commissioner Rebecca Kelly Slaughter Regarding the Proposed Merger Guidelines Issued by the Federal Trade Commission and U.S. Department of Justice at 3 (July 19, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/p234000_merger_guidelines_statement_bedoya_final.pdf. 
16 See, e.g., White & Case LLP, DOJ Antitrust Announces Five More Director Resignations from US Company Boards in Continued Aggressive Clayton Act Section 8 Enforcement, Increasing the Spotlight on Private Equity (PE) and Technology Firms (Mar. 17, 2023), https://www.whitecase.com/insight-alert/doj-antitrust-announces-five-more-director-resignations-us-company-boards-continued; White & Case LLP, 10 Minutes of Antitrust: Private Equity in the Spotlight of Antitrust Authorities (May 25, 2023), 10 Minutes of Antitrust: Private Equity in the Spotlight of US Antitrust Authorities | White & Case LLP (whitecase.com).
17 Proposed Guideline No. 9. 
18 Statement of Chair Lina M. Khan, joined by Commissioner Rebecca Kelly Slaughter and Commissioner Alvaro M. Bedoya Regarding FTC-DOJ Proposed Merger Guidelines Commission File No. P234000 at 2 (July 19, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/p234000_chair_statement_re_draft_merger_guidelines.pdf. 
19 Proposed Guideline No. 12.
20 See, e.g., Article 102 of the Treaty on the Function of the European Union (“TFEU”), Procedures in Article 102 Investigations, available at https://competition-policy.ec.europa.eu/antitrust/procedures/article-102-investigations_en (EU law prohibiting “abusive” behavior by companies with a dominant position in any market.). 
21 Proposed Guideline No. 7. See, e.g., Article 102 of the Treaty on the Function of the European Union (“TFEU”); see also European Union Guidelines on the Assessment of Horizontal Mergers Under the Council Regulation on the Control of Concentrations Between Undertakings § 17 (noting that the European Commission has in some cases considered mergers resulting in firms holding market shares below 40% as leading to the creation or the strengthening of a dominant position).
22 Proposed Guideline No. 2. The Proposed Guidelines note that structural presumptions may not be the only relevant indicia in identifying anticompetitive mergers. They also set a relatively low bar for when competition between merging firms is substantial. For instance, Antitrust Agencies would consider evidence of firms that merely monitor each other’s pricing, marketing campaigns, and products as substantial competition in certain markets, especially when the parties react to one another and take steps to preserve their competitive position vis-à-vis the other merging party. 
23 Proposed Guideline No. 3. See, also, e.g., Article 102, TFEU, available at https://competition-policy.ec.europa.eu/antitrust/legislation/application-article-102-tfeu_en#:~:text=Article%20102%20prohibits%20abusive%20behaviour,on%20actual%20or%20potential%20competitors (EU law prohibiting “abusive” behavior by companies with a dominant position in any market.). 
24 Any cognizable efficiencies would need to be achieved only through the merger, verifiable, passed to consumers, which is a view generally consistent with the 2010 Guidelines and subsequent case law. 
25 Proposed Guidelines §IV.3.
26 Proposed Guidelines Appendix 1, at 1 (“Workers and representatives from labor organizations can provide information regarding, among other things, wages, non-wage compensation, working conditions, the individualized needs of workers in the market in question, the frictions involved in changing jobs, and the industry in which they work.”).
27 See, e.g., U.S. Dep’t of Justice Antitrust Div. Press Release, Departments of Justice and Labor Strengthen Partnership to Protect Workers, Mar. 10. 2022, available at https://www.justice.gov/opa/pr/departments-justice-and-labor-strengthen-partnership-protect-workers; U.S. Dep’t of Justice Antitrust Div. Press Release, Justice Department and Federal Trade Commission Issue Joint Comment to Federal Energy Regulatory Commission (FERC) to Preserve Competition for Regional Transmission, Aug. 18, 2022, available at https://www.justice.gov/opa/pr/justice-department-and-federal-trade-commission-issue-joint-comment-federal-energy-regulatory; see also, generally U.S. Dep’t of Justice Antitrust Div. Interagency Memoranda of Understanding, available at https://www.justice.gov/atr/interagency-memoranda-understanding. 
28 See, e.g., Fed. Trade Comm’n v. Meta Platforms Inc., No. 5:22-cv-04325-EJD, 2023 BL 57650 (N.D. Cal. Jan. 31, 2023); United States v. Booz Allen Hamilton Inc., No. CCB-22-1603, 2022 BL 372917 (D. Md. Oct. 11, 2022); United States v. U.S. Sugar Corp., No. C.A. No. 21-1644 (MN), 2022 BL 344064 (D. Del. Sept. 28, 2022); United States v. UnitedHealth Group Inc., No. 1:22-cv-00481-CJN, 2022 BL 334606 (D.D.C. Sept. 19, 2022).}

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

_{© 2023 White & Case LLP}