• Structural presumptions remain a concern for business groups
• Aversion to remedies means parties must be ready to litigate, lawyer says
• Framework could complicate filings amid looming changes to HSR rule

Updated US merger guidelines tip the rules of antitrust reviews against dealmakers but doubts remain about whether the agencies have resources to widely enforce the expansive new theories, according to advisors, former enforcers and competition experts.

Even before the US Federal Trade Commission in cooperation with the US Department of Justice Antitrust Division released the final revised framework in December, many of the principles outlined had already been put into practice, they said.

From lowering the levels of concentration presumed unlawful, to making it harder to use efficiencies in defenses, to a focus on “trend toward consolidation,” the 51-page document marks a sharp departure from its 34-page 2010 predecessor.

While it remains to be seen how much influence courts will ultimately confer on the new construct, merging parties will be closely watching whether staff and budgets will allow the enforcement reality to match the aspirations in the guidelines, they said.

“Especially in pharma and things like that, I would be very hesitant about trying to pen out a deal in the face of this administration,” Brian Albrecht, chief economist for the International Center for Law and Economics (ICLE), told this news service.

ICLE was pleased that two of the four changes to the draft that it suggested were ultimately adopted, but the research group remains concerned the guidelines focus too much on structural presumptions – like limits on market concentration – as opposed to actual harm, he said.

“Any antitrust case is going to look at market share but as you read the guidelines, that alone could be enough to bring a case,” Albrecht said.

The FTC and DOJ declined to comment but in recent weeks agency officials have taken to the road to defend the framework.

“Modern economic theory and empirical work support continued reliance on the structural presumptions – the structural presumption is more than good law, it’s good policy,” Deputy Assistant Attorney General Michael Kades told an antitrust conference in Miami on Thursday.

Skepticism to remedies

For antitrust practitioners, the guidelines serve to articulate the more restrictive environment for mergers that has existed since the start of the Joe Biden administration.

Many of the more novel theories in the guidelines have already emerged in agency litigation, including challenges to Amgen’s [NASDAQ:AMGN] completed USD 27.8bn acquisition of Horizon Therapeutics, and Illumina’s [NASDAQ:ILMN] USD 7.1bn purchase of GRAIL, which is now in the process of being unwound.

The breadth of the new guidelines is likely to become particularly problematic with the looming approval of changes to the Hart-Scott-Rodino Act filing process, two antitrust advisors said.

New HSR requirements, combined with the need to consider the many theories that the guidelines tee up for possible investigation, will profoundly impact the way deals are structured and merging parties are counseled from the outset, they said.

“The way that we run cases is going to change enormously and the cost and time and effort is just going to increase astronomically,” said Lisl J. Dunlop, a partner in the antitrust practice at Axinn.

Increased skepticism to remedies, which has become a vexing challenge for dealmakers in recent years, is also a feature of the update. The message from enforcers is “that if your transaction has problems, then you shouldn’t be doing it,” Dunlop said.

Parties must consider whether to exclude certain assets when structuring a deal, or be ready ahead-of-time with a potential remedy as they approach a merger investigation. Even that is not guaranteed to satisfy the agencies, Dunlop explained.

“You have to be prepared to litigate and maybe through litigation, end up with a settlement,” she said.

One guideline receiving significant attention involves the lowering of the Herfindahl-Hirshman Index (HHI) thresholds – which measure market concentration. A post-merger HHI of 1800 with an increase of more than 100 points, for instance, is now presumed anticompetitive, down from 2500 with a 200-point move.

An 1800 level returns the HHI threshold to where it was in 1992, two antitrust experts said.

“This is really a gigantic move,” Timothy J. Muris, who served as FTC Chair during the administration of George W. Bush, said during a webinar on Wednesday hosted by the Information Technology & Innovation Foundation (ITIF).

That 1800 level could trigger more challenges of mergers where six equally sized companies in a market are reduced to five competitors – transactions that rarely saw challenges outside of the energy sector, he said.

“I predict there will be people deterred, at least until they see how serious the government is and how the situation plays out,” Muris told the conference. “I think…their goal of deterring mergers will be successful.”

During his speech in Miami last week, the DOJ’s Kades described the change to HHI in the new guidelines as “conservative,” and said it was well supported by literature and court decisions. “The empirical work available today…would arguably support even more stringent thresholds…” he said.

Contested framework

Even if such a low threshold would improve competition in theory, the average post-merger HHI in cases that were litigated by enforcers was 5800, with an average increase of nearly 2000, economist Carl Shapiro said during the ITIF webinar, citing a study of cases from 2000 to 2020 that he co-authored.

The agencies will need a lot more resources to enforce at this lower level, according to the two-time Deputy Assistant Attorney General for Economics in the DOJ Antitrust Division, who helped develop the 2010 guidelines. “So, that’s the first question: Will they do it?” he asked.

“Lowering them and not changing the actual enforcement will just create a bigger gap again between the guidelines and reality,” added Shapiro, who noted that he generally supports structural presumptions.

Issues like the threshold levels, as well as more novel additions, like consideration of whether an industry is trending toward consolidation, may cause merging parties to take their arguments beyond whether a deal surpasses a certain HHI, in favor of other competitive facts, antitrust advisors said.

“We’re not necessarily going to start by agreeing on the framework under which a merger should be evaluated,” Rebecca Farrington, a partner in White & Case’s global antitrust practice, told this news service.

Forthcoming changes to the HSR process could further complicate the application of the guidelines, should parties be required to affirmatively state their relevant markets and market shares when they file. “No merging parties would want to flag that their deal off-the-bat violates the presumptions in the merger guidelines,” she said.

Business groups have said the guidelines ignore the benefits of mergers to consumers and vowed that if the agencies take a similarly hard line with the final version of the more formal HSR rule, they may well see enforcers in court.

“This shortsightedness has led the agencies to circumvent economic analysis and make novel interpretations of the law,” said Sean Heather, SVP for international regulatory affairs and antitrust at the US Chamber of Commerce. “The guidance does little to change the fact that the courts have already rejected this approach.”