On December 18, 2023, the Department of Justice and the Federal Trade Commission (the Antitrust Agencies) issued the 2023 Merger Guidelines, which replace the Antitrust Agencies’ 2010 Horizontal Merger Guidelines and the 2020 Vertical Merger Guidelines. The new Merger Guidelines greatly expand the types of mergers that are deemed harmful to competition and will likely result in more transactions being investigated and challenged by the Antitrust Agencies. Some of the most notable changes in the new Merger Guidelines include:
- Most horizontal mergers creating a company with a market share of 30% or more will be viewed as anticompetitive: The Merger Guidelines create a presumption of illegality against any deal that increases the Herfindahl-Hirschman Index (HHI), a measure of market concentration, by more than 100 points if the deal creates a firm with a post-merger market share of at least 30%. Mathematically, this standard would deem any transaction creating a firm with a 30% market share as anticompetitive unless one party is contributing only a very small market share (less than 1.8%).
- Lowered standard for when market concentration becomes a problem: The Antitrust Agencies will now consider any merger that increases the HHI by 100 points or more and results in a post-merger market with an HHI of 1,800 points or more to be illegal. The prior post-merger HHI threshold at which a merger was deemed anticompetitive was 2,500, with a change of at least 200 points. This means that many more markets will be considered concentrated, and many more transactions will be viewed as presumptively anticompetitive.
- Vertical mergers may be presumed to be illegal if one party has a 50% share in a related product market: The Antitrust Agencies will infer that transactions involving vertical integration are anticompetitive if one of the parties has a 50% or more share in its market, even if the other party is only a small player in its respective market. This increases the antitrust risk of complementary transactions that may previously have received little or no scrutiny.
- “Roll-up” transactions will receive additional scrutiny: The Antitrust Agencies will now consider the total impact of a series of prior acquisitions when examining a merger, including the strategy behind the series of transactions. Roll-up strategies will face increased scrutiny, and parties may be forced to answer questions about prior transactions that are unrelated to the transaction being investigated.
- Labor market competition will be a key investigative issue in certain transactions: The Antitrust Agencies will consider the impact of a transaction on competition for workers, creators, suppliers, or other providers. Although the Antitrust Agencies have been considering labor issues for several years, the new Merger Guidelines now provide specific guidance supporting labor markets as a point of emphasis when evaluating transactions. Transactions that could result in reduced labor market competition or lower wages, decreased benefits, or worse working conditions may be subject to additional scrutiny.
In sum, the new Merger Guidelines may result in lengthy investigations of and challenges to transactions that would not have been investigated or challenged under the prior guidelines. Importantly, the new Merger Guidelines are just that – guidelines – and do not change the law. Ultimately, the Antitrust Agencies will still have to convince courts that challenged transactions are illegal under existing law or convince courts to change the law to be more consistent with the new Merger Guidelines. Nonetheless, the Antitrust Agencies have significant power to deter transactions by forcing parties to undergo lengthy investigations before the transaction is considered by a court, and thus, the Guidelines should have a significant impact on deal volume and enforcement priorities.
If you have questions about the new Merger Guidelines and how they could affect your business, please contact the authors or the Bass, Berry & Sims Antitrust Team.