DOJ and FTC Issue Final 2023 Merger Guidelines With Significant Changes and Updates

After more than two years of preview and consultation, including thousands of public comments, the Antitrust Division of the Department of Justice and the Federal Trade Commission issued the final version of their 2023 Merger Guidelines (“Guidelines”) yesterday, December 18, 2023. As we noted when the draft guidelines were released in July, the final Guidelines both harken back to older, long-standing precedent and provide a framework for how the Agencies apply merger enforcement policy in modern economic markets. The Guidelines hold fast to the Biden administration’s enforcement policy to address harms from what they perceive to be “excessive” corporate consolidation by reinvigorating and enhancing merger enforcement. Yet, the final Guidelines show that the Agencies have responded to at least some of the criticism of the draft version, and may be more likely to align with how courts currently analyze merger challenges.

The Guidelines reflect both significant and subtle changes. For now, we note the following five key takeaways from the final Guidelines, and we will do a deeper dive into select issues in a series of alerts to follow. 

1. New Market Share and Lower Market Concentration Levels to Identify Presumptively Unlawful Horizontal Mergers

   As with the July draft Guidelines, the final version includes a market-share presumption based on a 1963 Supreme Court case and adopts pre-2010 Merger Guidelines market-structure thresholds to identify horizontal mergers that are presumptively likely to substantially lessen competition.

   Under the new Guidelines, an acquisition that would result in a combined 30% market share would be presumptively unlawful, as would “6-to-5” mergers reflecting post-merger concentration (HHIs) of over 1,800, under certain circumstances. It remains to be seen whether the Agencies will challenge mergers under these lowered thresholds, and whether courts will agree with their market-concentration presumptions.
   
   

2. Final Version Softens “Presumptive” Language and Emphasizes Presumptions are Rebuttable

   One of the areas of greatest concern regarding the July draft Guidelines was the notion that the Agencies were setting out hard and fast rules against certain types of mergers, for example by stating guidelines as “mergers should not ….” The final 2023 Guidelines soften that language – to “mergers may violate the law when they …” and make clear in numerous ways that the Agencies’ theories of harm may be rebutted by the merging parties’ evidence. That theme is emphasized in the overview, the language of the Guidelines themselves, and the discussion of rebuttal evidence that follows the eleven individual Guidelines directly.

   One type of rebuttal evidence involves cost savings and other merger efficiencies, of which the government has historically been quite skeptical. The final Guidelines maintain references to 1960s Supreme Court cases that reject efficiencies as a defense to a merger’s illegality. Nevertheless, the final Guidelines identify a narrow path through which efficiencies might be credited.
   
   

3. Comprehensive Approach to Include Vertical and Non-Horizontal Mergers

   One important aspect of the 2023 Guidelines is that the Agencies provide a comprehensive approach to all types of mergers – horizontal, vertical, and “non-horizontal” (conglomerate) – in one document. In so doing, they attracted strong criticism of their initial approach to structural presumptions for vertical and other non-horizontal mergers. The July draft presumed a vertical merger involving 50% market foreclosure would be unlawful. The draft guideline regarding non-horizontal mergers, described as those that “entrench or extend a dominant position,” stated that a firm with a 30% share would be defined as having a dominant position.

   The final 2023 Guidelines retreat somewhat from those structural presumptions, with no formal market share presumption for vertical mergers, though noting in a footnote that the Agencies will infer a firm has or is approaching monopoly power when it has a 50% or greater share, and stating that a merger by a firm with a lower share may still raise concerns “when the related product is important to its trading partners.” The 2023 Guidelines also modernize current theories of harm to address, either for the first time or in more detail, platform markets, labor markets, serial acquisitions, and minority investments, the latter two issues often being associated with private equity firms.
   
   

4. Economic Analysis, Both Old and New, Reinstated to Main Text in Final Guidelines

   The structure of the draft Guidelines relative to prior versions was a subject of much discussion, as it emphasized the Agencies’ legal theories for challenging mergers, and the judicial authority supporting those theories, while relegating much of the economic and evidentiary analysis to a series of appendices. The final 2023 Guidelines address these comments by restoring the economic and evidentiary analyses to the body of the Guidelines themselves. Notably, they also consolidate the discussion regarding market definition and measurement, and move that discussion further back in the document behind rebuttal evidence. This apparent prioritization is consistent with commentary, especially from economists, arguing that competitive effects should be highlighted above market definition. The Guidelines also add new focus on economic evidence relevant to assessing potential harm from mergers impacting labor markets.
   
   

5. As a Practical Matter, What Changes the Risk Assessment from One Week Ago? Not Much.

   While the 2023 Guidelines signal a more aggressive approach to merger enforcement, they largely reflect what has already become a reality for many companies seeking merger clearance in the Biden administration. Both Agencies have been aggressive and have investigated and challenged mergers based on relatively unconventional theories of harms.

   For sure, the new market share and lowered market concentration presumptions may change the risk profile for certain deals. But more generally, little may change in practice – at least in this administration – in terms of merging parties’ day-to-day engagement with the Agencies on particular theories of competitive effects, the amount and type of evidence required to obtain merger clearance, and the facts and potential harms that are likely to raise Agency concerns.

   In the long run, the courts will have the final say on whether or not to adopt the new Guidelines’ framework in their analyses of merger challenges. Previous changes to the Merger Guidelines by prior administrations have gradually found their way into many judicial decisions to become not just agency practice but part of the prevailing legal standard. And here the Agencies clearly have made an effort to make these Guidelines useful and acceptable to reviewing courts in the hope that they will lead to more agency challenges being sustained.

   One thing seems certain: the DOJ and FTC under the Biden administration will continue to aggressively scrutinize mergers, and continue to litigate merger challenges, including those involving novel theories and facts. It remains to be seen, however, what the ultimate impact of the new Guidelines will be on influencing which mergers are ultimately found to substantially lessen competition.

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Crowell & Moring will post a series of alerts on the 2023 DOJ/FTC Merger Guidelines, with greater detail on specific changes and provisions. Please reach out to your Crowell contact for further information.