Another antitrust shoe drops: FTC, DOJ publish Draft Merger Guidelines for comment–what are the effects?

The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have published for public comment a draft of revised corporate merger guidelines. These update prior guidelines from 1968 which have been revised six times since. These are stated as incorporating comments from hearings and comments that started in January. 

The Draft Merger Guidelines on FTC.gov are open for comment for the next 60 days (18 September), cleverly during a time when most of Washington DC is repairing to cooler climes for summer holidays. They are centered on what DOJ Antitrust and FTC loftily call The 13 Guidelines. These will be used singly or in combination for these agencies to determine “whether a merger is unlawfully anticompetitive under the antitrust laws.” 

1. Mergers should not significantly increase concentration in highly concentrated markets;
2. Mergers should not eliminate substantial competition between firms;
3. Mergers should not increase the risk of coordination;
4. Mergers should not eliminate a potential entrant in a concentrated market;
5. Mergers should not substantially lessen competition by creating a firm that controls products or services that its rivals may use to compete;
6. Vertical mergers should not create market structures that foreclose competition;
7. Mergers should not entrench or extend a dominant position;
8. Mergers should not further a trend toward concentration;
9. When a merger is part of a series of multiple acquisitions, the agencies may examine the whole series;
10. When a merger involves a multi-sided platform, the agencies examine competition between platforms, on a platform, or to displace a platform;
11. When a merger involves competing buyers, the agencies examine whether it may substantially lessen competition for workers or other sellers;
12. When an acquisition involves partial ownership or minority interests, the agencies examine its impact on competition; and
13. Mergers should not otherwise substantially lessen competition or tend to create a monopoly

Assistant Attorney General Jonathan Kanter of the Antitrust Division stated in the DOJ/FTC release, “Today, we are issuing draft guidelines that are faithful to the law, which prevents mergers that threaten competition or tend to create monopolies. As markets and commercial realities change, it is vital that we adapt our law enforcement tools to keep pace so that we can protect competition in a manner that reflects the intricacies of our modern economy. Simply put, competition today looks different than it did 50 — or even 15 — years ago.” Not to be outspoken, FTC Chair Lina M. Khan, got her dibs in: “With these draft Merger Guidelines, we are updating our enforcement manual to reflect the realities of how firms do business in the modern economy.” Here the DOJ Antitrust Division takes the communications lead but the draft is published by FTC. These guidelines require no ratification by Congress as they are administrative in nature.

To this Editor, it is hard to see that any merger or acquisition of like companies or even complimentary organizations could pass. Consider the following scenarios: a leading telehealth or remote patient monitoring company offers to buy a struggling early-stage AI/ML or data analytics company to expand its capabilities, a larger health system buys a failing community hospital, one hotel looks to buy another down the street, VCs or equity investors look to exit just about anything through a sale. Every one of these situations triggers one or more of these guidelines.

Coupled with the proposed changes to the Premerger Notification under the Hart-Scott-Rodino Act (HSR Act) [TTA 29 June] now published in the Federal Register (29 June), open for comment until 28 August, we may be looking at the last few years as the Last Good Time for M&A, even with current restrictions in place.

As your Editor said last month, “For those surprised that FTC is taking the lead on this, this once-sleepy agency woke up late last year in a heckuva bad humor and is now taking a far more activist role in corporate oversight in areas such as privacy.” This was powered by a 2021 executive order by the current president for any and all mergers to be scrutinized. Earlier, FTC and DOJ withdrew antitrust policy statements that they now feel are overly permissive. FierceHealthcare

Already industry machers such as the American Hospital Association, Federation of American Hospitals, Pharmaceutical Research and Manufacturers of America (PhRMA) have asked the FTC mildly and politely for a further 60-day extension of the comment period. This includes non-healthcare organizations such as the American Hotel & Lodging Association and the Consumer Technology Association which runs CES. (Don’t hold your breath) FierceHealthcare

In the cloudy crystal ball, this Editor sees a rush to complete acquisitions 1) below the HSR threshold ($111 million) and 2) in general before the new antitrust guidelines are adopted–and they will be as they are administrative measures and not laws. To reiterate previous comments, overall it will further depress M&A and investor exits, especially in healthcare and with mid-size private and public companies, funding beyond Series A/B, and valuations.  If you start a business, inherit one, or are trying to turn around one that has lost its markets or unprofitable–but can’t sell it in the future, what you have is a ton of frozen value and uninterested lenders. Will a thousand flowers bloom, like they did in airline deregulation 1980-1995–drive businesses to friendlier countries like Ireland or Poland–then lead to stagnation? Perhaps a new era of conglomerates of unrelated businesses a lá LTV and Gulf+Western in the 1960s? Tell your Editor and fellow Readers below.