Although the number of corporate mergers surged during President Biden’s first year in office, all signs point to a tougher regulatory environment for deals going forward.

In 2021, $5.8 trillion changed hands as a result of corporate mergers across the globe.^[1]  This 64 percent increase over 2020 far surpassed the previous annual record,^[2] and now the Biden Administration appears to be taking steps toward fulfilling the President’s goal of ramping up antitrust enforcement.^[3]  One such measure includes taking a more critical approach when evaluating proposed mergers, and federal agencies have already filed several high-profile investigations.^[4]

On January 18, the Federal Trade Commission and the U.S. Department of Justice’s Antitrust Division jointly announced plans to “modernize federal merger guidelines to better detect and prevent illegal, anti-competitive deals.”^[5]  These are expected to overhaul both the 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines, presumably in a unified set of new guidelines.^[6]

The FTC and DOJ joint press release noted that “many industries across the economy are becoming more concentrated and less competitive” and this new rulemaking effort seeks to modernize current guidelines to better reflect evolving markets.^[7]  Instead of relying solely on traditional antitrust metrics such as consumer prices, the new guidelines appear poised to adopt additional assessment criteria that take into account factors such as a merger’s impact on privacy or how even low-priced marketplaces can exercise monopoly power.^[8]

FTC Chair Lina Khan has been a vocal critic of big-tech and is expected to push new guidelines that would make it harder for large tech companies to consolidate.  However, Khan has commented that she intends for the new rules to apply to all industries in light of the market consolidation taking place across the board in industries ranging from retail to healthcare.^[9]  While Jonathan Kanter, the newly-installed head of the DOJ’s Antitrust Division, appears aligned with many of Khan’s concerns, it remains to be seen whether he will push as aggressively as Khan when it comes to the updated guidelines, including as to potential reforms to the traditional economic analyses undergirding prior iterations of the guidelines.^[10]

The two Republican FTC Commissioners voiced their concern in a joint statement that the new guidelines could “discount or ignore [the value of] efficiencies when analyzing mergers” and that the new rules might also unduly focus on mergers that harm competition without asking the more pertinent question of whether or not a consolidation that hurts business rivals also “benefit[s] consumers through lower prices, enhanced quality, and more innovation.” ^[11]

While companies will need to prepare for the increased likelihood that their mergers will face heightened scrutiny, the new rules will likely not be finalized for some time.  Both Khan and Kanter aim to finalize the new guidelines before the end of the year,^[12] but the process could extend into 2023.  In addition, inasmuch as the enforcers remain “severely under-resourced,” they will likely have to continue to selectively pick and choose which mergers to investigate and potentially challenge.^[13]  Nevertheless, companies should begin to anticipate how a far more progressive antitrust agenda might apply new metrics that could subject them to expensive and drawn out merger investigations going forward.

Companies and other market participants interested in the future of the federal merger guidelines should speak out now to make their voices heard.  The agencies are currently seeking public comment, with the 60-day public comment period set to close March 21, 2022.  In particular, the agencies are currently seeking input regarding the following main issues and questions:^[14]

1. Purpose, Harms, and Scope—Whether the guidelines are clear regarding when mergers may be enjoined, and whether the horizontal and vertical merger framework should be revised given modern economic trends?

2. Types and Sources of Evidence—What evidence should be used to assess whether a merger is anticompetitive?

3. Coordinated Effects—How could the guidelines better account for coordination in oligopolistic and oligopsonistic markets?

4. Unilateral Effects—How could the guidelines better evaluate unilateral effects from a merger?

5. Presumptions—How could the guidelines’ presumptions that certain transactions are anticompetitive be updated? What metrics should be applied?

6. Market Definition—When analyzing competitive effects, how should the guidelines define markets to better account for non-price factors?

7. Potential and Nascent Competition—How could the guidelines better protect potential and nascent competitors from anticompetitive mergers?

8. Remedies—How should the guidelines amend its approach to remedies and remedy proposals?

9. Monopsony Power and Labor Markets—How should the guidelines assess monopsony power, and what metrics should be used to define labor markets?

10. Innovation and IP—How should the guidelines approach merger analysis when considering innovation?

11. Digital Markets—How should the guidelines approach merger analysis in the context of digital markets?

12. Special Characteristics Markets—How should the guidelines approach a whole host of various markets with special characteristics (i.e. auctions, bundled products, cluster markets, etc.)?

13. Barriers to Firm Entry and Growth—How should the guidelines analyze a market’s barriers to entry?

14. Efficiencies—How should the guidelines analyze a proposed merger’s claims that the merger will produce efficiencies and other benefits?

15. Failing and Flailing Firms—How should the guidelines approach merger analysis in the context of failing and flailing firms?

After the 60-day public comment period concludes, the agencies will issue a first draft of the revised guidelines.  This likely will be followed by another round of public comment before the agencies issue finalized merger guidelines.

FOOTNOTES

^[1] Regulators aim to rewrite rules for big mergers. – The New York Times (nytimes.com)

^[2] Global M&A volumes hit record high in 2021, breach $5 trillion for first time | Reuters

^[3] Executive Order on Promoting Competition in the American Economy | The White House

^[4] The antitrust case against Nvidia-Arm is just the beginning (fastcompany.com); Biden’s executive order on antitrust aims to lower prices and raise wages – Vox

^[5] Federal Trade Commission and Justice Department Seek to Strengthen Enforcement Against Illegal Mergers | Federal Trade Commission (ftc.gov)

^[6] The FTC has already withdrawn the 2020 Vertical Merger Guidelines. DOJ has stated that it “shares the Commission’s substantive concerns with economic and legal errors in them and seeks to replace them expeditiously with a document better reflecting its current approach.” https://www.regulations.gov/docket/FTC-2022-0003/document (“Request for Information on Merger  Enforcement”).

^[7] Federal Trade Commission and Justice Department Seek to Strengthen Enforcement Against Illegal Mergers | Federal Trade Commission (ftc.gov)

^[8] Justice Department, FTC Launch Effort To Strengthen Merger Enforcement – Deadline; FTC, DOJ seek to rewrite merger guidelines, signaling a tougher look at large deals (msn.com)

^[9] Lina Khan FTC interview: 5 takeaways about Big Tech (fastcompany.com)

^[10] Limited Resources Will Test DOJ Preference For Merger Suits – Law360

^[11] Statement of Commissioners Noah Joshua Phillips and Christine S. Wilson Regarding the Request for Information on Merger Enforcement (ftc.gov)

^[12] Assistant Attorney General Jonathan Kanter Delivers Remarks on Modernizing Merger Guidelines | OPA | Department of Justice

^[13] Lina Khan FTC interview: 5 takeaways about Big Tech (fastcompany.com); Limited Resources Will Test DOJ Preference For Merger Suits – Law360

^[14] https://www.regulations.gov/docket/FTC-2022-0003/document (“Request for Information on Merger  Enforcement”)