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Merger guidelines update to bring some clarity amid declining M&A – Analysis

As the number of mergers seeking US antitrust approval fell sharply in March, advisors and enforcers are hoping updated merger guidelines will demystify how to structure transactions that can overcome an increasingly uncertain merger review process, according to antitrust lawyers and enforcers.

In March, US antitrust authorities received 122 Hart-Scott-Rodino (HSR) filings, according to preliminary figures from the FTC. Except for four months in late Spring and Summer of 2020 – during the depths of the COVID-19 pandemic – it marked the fewest monthly filings in more than eight years, agency figures show. 

While reasons for the decline could be as much macroeconomic as regulatory, antitrust advisors expect the new guidelines to bring greater clarity, even as they tip the legal scales further in favor of enforcers. 

“The uncertainty is definitely having an effect at the margins, when you've got a deal that maybe in past years you would move forward with, knowing that you had a predictable process.” said Adam Di Vincenzo, a litigation partner at Milbank, who specializes in antitrust.

Release of the new guidelines – being developed jointly by the Department of Justice Antitrust Division (DOJ) and the Federal Trade Commission (FTC) – has been highly anticipated since a public comments period was announced in January of 2022.

A void in guidance has existed since the FTC withdrew vertical merger guidelines in September of 2021, citing “unsound economic theories,” as has been reported. That came even as both agencies dramatically increased investigations and enforcement actions.

While no single factor is to blame, regulatory uncertainty is very likely impacting the volume of transactions, said a former FTC enforcer now in private practice. “Chances of at least getting investigated are going up,” the lawyer said, citing conversations with other practitioners. “That’s slowing or stopping some deals.”

Enforcers received roughly 6,000 comments from businesses and individuals responding to requests for information on a range of topics, including competitive harms, scope, digital markets, innovation and labor, according to a source with knowledge of the FTC’s work on the guidelines.

Drafts of what is described as a “major and aggressive revision” to the guidelines have been circulated, according to another source with knowledge of the DOJ’s work on the project.

Agency officials had hoped to have the guidelines ready before last month’s ABA Antitrust Section Spring Meeting, both sources said. 

A key pillar of the effort was to ensure the new guidelines fully reflect “commercial realities” of today’s markets, including in the digital realm, FTC Chair Lina Khan said in very brief remarks on the topic during the ABA conference. 

“We’re excited in short order to be able to share a draft publicly,” she told the gathering.

In more extensive remarks during that event, DOJ Deputy Assistant Attorney General Maggie Goodlander cited threads in US Supreme Court case law that obligate enforcers to carefully analyze “market realities.”

“That is really a principle that is at the core of our thinking,” she said. “You see it in…all of our court filings, and you’ll see that basic principle in the guidelines, as well.”

She recounted a brief history of the merger guidelines, which were first issued in the late 1960s as interpretations of existing law and subject to change without notice. “This was not an effort of lawmaking,” Goodlander said.

Another objective of the guidelines is to ensure that enforcers are “treating like cases, alike,” Goodlander said. 

“I don’t think anyone will be surprised by the new guidelines, if you’ve read (The Sherman Act) and the relevant cases that interpret the statute,” she said.

In the meantime, antitrust counsel advising on possible mergers are being forced to ask new questions of companies about topics like how the transaction will impact workers, and whether the parties are important buyers of a product, explained Di Vincenzo, the Milbank partner.

“You have to look at all sides of the market that your client’s involved in and really ask probing questions,” he said. 

He expects language in the new guidance will reinforce the FTC’s 2022 policy statement about Section 5 of the FTC Act, which takes a newly expansive view of the statute broadly prohibiting unfair methods of competition.  

Enforcers are also likely to hold onto provisions that tend to favor the government in litigation, such as presumptions based on market share, Di Vincenzo said. Thresholds for Herfindahl-Hirschman Index (HHI) levels that denote competitively problematic concentrations are likely to be brought down, he expects.

In addition to issues of labor and buyer power, antitrust advisors will be particularly interested in what the guidelines say about remedies, though it is possible the agencies could choose to skirt the topic, given distance between their respective policies, Di Vincenzo said. 

DOJ has taken a tough line against remedies and consent decrees, whereas the FTC has been more willing to allow them, albeit often under stringent conditions, he noted.

One important bellwether involves whether the guidelines continue to make a distinction between horizontal merger guidance and vertical merger guidance, or whether they are reduced to a single set of guidelines covering both, said Rohit Singla, a partner at Munger, Tolles & Olson, who specializes in antitrust and technology.

A single set of guidelines would suggest a diminished appreciation for the notion that vertical mergers are less likely to result in anti-competitive effects, and an acknowledgement that they should be scrutinized as closely as horizontal transactions, he explained. 

“If they’re going to have one set of guidelines, I think that sends a strong signal that the agencies are much more skeptical of the pro-competitive benefits of acquisitions and mergers,” Singla said.

“It’s kind of a theme here that they’re much less interested today in those traditional measures of output and prices, and instead focusing on many other kinds of concerns,” he said.