On 19 July 2023, the United States Department of Justice (DOJ) and Federal Trade Commission (FTC) (Agencies) jointly released a draft of their updated Merger Guidelines for public comment (Guidelines).
The Guidelines will consolidate, revise and replace earlier versions of Merger Guidelines (including the 2010 Horizontal Merger Guidelines and 2020 Vertical Merger Guidelines), and reflect the Biden administration’s commitment to strengthening merger enforcement in response to perceived excessive concentration in a number of industries.
The draft Guidelines have been released following changes that the DOJ and FTC jointly announced last month to their filing requirements for notifiable transactions. These changes materially expand the information and documents that merger parties need to provide upfront.
The substantive issues canvassed in the Guidelines closely parallel concerns the ACCC has raised as underpinning its case for merger reforms in Australia, as well as public comments made by other competition agencies like the UK Competition and Markets Authority and the European Commission. These developments indicate a broader global trend towards tighter merger enforcement with closer regulatory scrutiny of deals, a greater willingness to oppose transactions, and a greater onus on merger parties to provide significant information upfront to substantiate their submissions.
The Agencies will gather feedback on the draft Guidelines over a 60-day consultation period, before updating and then publishing a final version.
The draft Guidelines set out the Agencies’ updated analytical framework for evaluating the competitive effects of mergers in a dynamic, changing economy. There are 13 guidelines, each of which is accompanied by references to case law and analytical tools that underpin the key principles. The 13 guidelines are not mutually exclusive, and the Agencies may focus on one or more guidelines that are most applicable to any particular transaction.
The guidelines are as follows:
- Mergers should not significantly increase concentration in highly concentrated markets
- Mergers should not eliminate substantial competition between firms
- Mergers should not increase the risk of coordination
- Mergers should not eliminate a potential entrant in a concentrated market
- Mergers should not substantially lessen competition by creating a firm that controls products or services that its rivals may use to compete
- Vertical mergers should not create market structures that foreclose competition
- Mergers should not entrench or extend a dominant position
- Mergers should not further a trend toward concentration
- When a merger is part of a series of multiple acquisitions, the Agencies may examine the whole series
- When a merger involves a multi-sided platform, the Agencies examine competition between platforms, on a platform or to displace a platform
- When a merger involves competing buyers, the Agencies examine whether it may substantially lessen competition for workers or other sellers
- When an acquisition involves partial ownership or minority interests, the Agencies examine its impact on competition
- Mergers should not otherwise substantially lessen competition or tend to create a monopoly
At a high level, many of the guidelines set out above seem uncontroversial and consistent with current practices. However, the devil lies in the detail, and the explanations of each guideline reflect a likely more aggressive approach to merger enforcement. For example, the explanation to Guideline 1 involves the Agencies lowering the market concentration (Herfindahl–Hirschman Index or ‘HHI’) thresholds that trigger a structural presumption that a merger is anti-competitive to pre-2010 levels. The proposal also involves lowering the threshold of what constitutes a ‘highly concentrated market’ from a HHI of 2,500 to 1,800.
The Guidelines are not legally binding. However, they are regarded as persuasive authority to inform merger parties and their legal representatives on how the Agencies will analyse transactions. While businesses and their legal representatives appear to have welcomed greater transparency over the factors that underlie the Agencies’ competition analysis, there is some concern that the Agencies have self-selected economic principles and case law that supports their proposed approach to merger enforcement without providing adequate justification for why certain positions have been taken. A number of commentators have also observed that several cases referred to in the Guidelines are decades old, hearkening back to more interventionist regulatory times, and there is potentially a missed opportunity to draw upon more recent jurisprudence.
It seems likely that, if the Guidelines are adopted, the Agencies will find more mergers presumptively anti-competitive and may conduct lengthier and more detailed reviews of transactions. However, it remains to be seen to what extent the principles set out in the Guidelines will be reflected in US courts’ evaluation of transactions and to what degree US courts will be prepared to defer to the principles in the Guidelines when assessing the competitive impacts of mergers. The recent Microsoft/Activision case suggests that US courts may continue to hold the Agencies to a rigorous evidential and legal standard.
What are the potential implications for, and parallels with, Australian merger enforcement?
Although the Guidelines inherently reflect US-specific merger enforcement issues, a number of the principles in the Guidelines are also mirrored in statements made by competition agencies in other jurisdictions (including Australia), suggesting broader alignment between competition agencies on developing theories of harm and future areas of focus. Indeed, several hallmarks of anti-competitive mergers as set out in the Guidelines appear to underpin the ACCC’s merger reform proposals. For example, from the ACCC’s public dialogue about its merger reform proposals, it is clear that:
An expansion of the substantial lessening of competition test is on the horizon: the ACCC is advocating for an expansion of the ‘substantial lessening of competition test’ under section 50 of the Competition and Consumer Act 2010 (Cth) (CCA) to make it clear that it includes ‘entrenching, materially increasing or materially extending a position of substantial market power’.[1] This parallels Guideline 7 of the Guidelines, which sets out the Agencies’ view that mergers which entrench the market position of a dominant firm, or extend it into new markets, may be anti-competitive. It also suggests that the ACCC and DOJ/FTC intend to place greater focus on any structural effects of a merger arising from the overall enhancement of dominant positions by large firms.
Concerns about creeping acquisitions loom large: In Australia, the proposal to expand the ‘substantial lessening of competition’ test is also underpinned by the ACCC’s concerns about ‘creeping acquisitions’ – that is, acquisitions which individually may not substantially lessen competition but may over time or cumulatively lead to competition concerns by materially increasing, entrenching or extending market power. This concern is reflected in the ACCC’s proposal to introduce a new factor – ‘whether the acquisition is part of a series of relevant acquisitions’ – that must be taken into account in considering any transaction. This is also a clear area of focus for the Agencies, with Guideline 9 stating that, where a merger is part of a series of multiple acquisitions, the Agencies may examine the whole series, even if no single acquisition on its own would risk substantially lessening competition.
Preventing killer acquisitions remains high on the global antitrust agenda: In recent years, competition agencies globally have grappled with issues relating to ‘killer acquisitions’ (i.e. acquisitions which may eliminate potential entrants or nascent competitors before they can become significant rivals). The ACCC and other agencies have been particularly alive to these issues in digital markets. In her speech discussing the ACCC’s merger reform proposals earlier this year, ACCC Chair, Gina Cass-Gottlieb, stated that this concern underpins the ACCC’s proposal to introduce a new merger factor to address ‘the loss of actual or potential competitive rivalry.’[2]
This concern is also reflected in Guideline 4 which states that, when assessing whether a merger will eliminate a potential entrant in a concentrated market, the Agencies will consider:
- whether one or both of the merging firms had a reasonable probability of entering the relevant market other than through an anti-competitive merger, and
- whether such entry offered “a substantial likelihood of ultimately producing de-concentration of [the] market or other significant procompetitive effects”.[3]
Mergers that consolidate control over critical inputs will be scrutinised carefully: Another common area of focus between the ACCC and the DOJ/FTC is transactions that may increase a merged entity’s control over critical inputs required by its rivals to compete. Guideline 5 states that such mergers may substantially lessen competition, with this principle also reflected in the ACCC’s proposal to introduce a merger factor relating to whether a transaction will result in ‘increased access to, or control of data, technology or other significant assets’.
Other potential competition concerns raised in the Guidelines – including concerns over cross-ownership of minority interests and lessening of competition for workers arising from consolidation of significant employers – have also featured in the Australian political landscape, and it is possible that there will be further developments on this issues in Australia in the future.[4]
Engagement with Treasury and the Australian Government on merger reform is ongoing
The ACCC is currently engaging with Treasury in relation to the merger reform proposals. Given the ACCC’s proposals mirror broader global trends towards more stringent merger enforcement, it seems likely that the ACCC will draw upon the practical experience of other agencies around the world when developing and refining key aspects of the regime and its enforcement in Australia.
[1] Gina Cass-Gottlieb (ACCC Chair) speech to National Press Club 2023 – The role of the ACCC and competition in a transitioning economy
[2] Gina Cass-Gottlieb (ACCC Chair) speech to National Press Club 2023 – The role of the ACCC and competition in a transitioning economy
[3] U.S. Department of Justice and the Federal Trade Commission, Draft Merger Guidelines, 19 July 2023, p11.
[4] For example, see a speech given by Hon Dr Andrew Leigh MP, Assistant Minister for Competition, Charities and Treasury in March this year on ‘How Uncompetitive Markets Hurt Workers’.