The Federal Trade Commission and the Department of Justice announce the release of revised Horizontal Merger Guidelines
On April 20, 2010, following several months of public effort, the Federal Trade Commission and the Department of Justice announced the release of a new set of Horizontal Merger Guidelines, and invited public comments. The Proposed Guidelines are intended to replace the current set of Horizontal Merger Guidelines, which were initially published in 1992, and revised in 1997.
4/27/2010
On April 20, 2010, following several months of public effort, the Federal Trade Commission (“FTC”) announced the release of a new set of Horizontal Merger Guidelines (the “Proposed Guidelines”), and invited public comments. The Proposed Guidelines are intended to replace the Horizontal Merger Guidelines (“1992 Guidelines”), initially published in 1992, and revised in 1997.
The Proposed Guidelines depart in several ways from the 1992 Guidelines:
- they place a lesser emphasis on market definition;
- they place relatively greater emphasis on unilateral effects of the transaction, as compared with the potential for coordinated effects among market participants;
- they increase the Herfindahl-Hirschman Index (“HHI”) thresholds at which transactions will be flagged as competitive concerns;
- they address several new topics, such as market power exercised by buyers; and
- they seek generally to articulate an approach to merger analysis that is less rigidly formulaic, and more holistic.
While these changes appear, in some instances, to depart sharply from the earlier text, the Department of Justice (“DOJ”) and the FTC (together with the DOJ, the “Agencies”) have stated that they simply codify the standard analysis practice the Agencies have followed for years. Indeed, much of what is new in the Proposed Guidelines was previewed in a published commentary to the 1992 Guidelines that was issued by the Agencies in 2006 (the “2006 Commentary”).
Like the earlier versions, the Proposed Guidelines aim to ensure “that mergers should not be permitted to create, enhance, or entrench market power or to facilitate its exercise.” However, the Proposed Guidelines stress that the agencies are not limited to a single methodology for analyzing mergers. In particular, they note that “market definition is not an end in itself,” but is merely one of an array of tools in the Agencies’ arsenal. Furthermore, the Proposed Guidelines explicitly state that the Agencies’ merger analyses “need not start with market definition.” The Agencies note that a flexible approach to market definition is especially useful where plausible alternative market definitions yield divergent inferences about a merger’s potential competitive effects. The explicit effort to deemphasize market definition as a required step in all merger analysis seems to be a stark change from the 1992 Guidelines, and some observers have linked the language of the Proposed Guidelines to either an effort to respond to certain adverse court opinions, or a broader shift by the Agencies toward more aggressive enforcement under the current administration. However, the 2006 Commentary had already made it known that the Agencies “do not settle on a relevant market definition before proceeding to address other issues.”
The Proposed Guidelines seem to reflect a shift in the focus of the Agencies’ analysis of competitive effects. The Agencies appear now to be somewhat more concerned with the potential for “unilateral effects,” produced by elimination of direct competition between the merging parties, such as the ability to divert sales between products sold by the previously competing firms. While the Proposed Guidelines do not ignore the possible effects of coordinated post-merger conduct by all the participants in a market, the focus of coordinated effects analysis now seems to be squarely on analysis of the ability of firms to observe and react to one another’s visible market activities, with relatively less attention paid to conditions that might facilitate the more extreme instances of explicit agreements among competitors and efforts to punish deviations from such agreements.
The Proposed Guidelines include revisions to the standards for assessing market concentration with the Herfindahl-Hirschman Index (“HHI”). The threshold level below which the Agencies view markets as unconcentrated has been increased from 1000 to 1500. Mergers which result in HHIs of 1500 or less will be judged unlikely to have anticompetitive effects, and not subjected to further analysis. Similarly, the lower threshold for markets the Agencies regard as highly concentrated has been increased from 1800 to 2500. The new standards mean that fewer mergers should be challenged than would be the case following the standards from the 1992 Guidelines. (However, the earlier standards had been relaxed for some time in practice, so the Proposed Guidelines may be seen more as an effort to more accurately reflect actual Agency practice than an announcement of a real relaxation of the standard.)
The Proposed Guidelines include completely new discussions of considerations the Agencies may apply to transactions involving companies that may exert market power as buyers (as well as a separate discussion of the presence of powerful buyers as a factor to be considered in market analysis generally). While the Agencies propose to apply essentially the same framework to market power on the buying side as on the selling side of a market, the fact that the areas are now being addressed separately in the Proposed Guidelines may indicate either that the Agencies are increasingly concerned about buyer market power, or that they anticipate that these areas may require differing analytical frameworks at some point in the future.
The Proposed Guidelines also include an outline of the types and sources of evidence upon which the Agencies will base their conclusions about a transaction. They also explicitly address transactions that do not result in a complete transfer of ownership between competitors, but may still raise competitive concerns, such as information-sharing and/or the ability to influence a competitor’s conduct via a minority voting interest.
Finally, the Proposed Guidelines repeatedly note that none of the tools of merger analysis is necessarily to be applied in all instances. Instead, the Proposed Guidelines frequently emphasize that each tool, including market definition and HHI thresholds, among others, is merely part of a broader range of analytical tools and approaches the Agencies will use to evaluate actual and potential competitive concerns associated with a transaction.
While in most respects the Proposed Guidelines seem to represent only modest incremental change from the 1992 Guidelines, it remains to be seen whether they foreshadow any substantial change in the way the Agencies will approach merger analysis in practice. Since taking office last year, officials of the new administration have taken several opportunities to signal their intention to approach enforcement—including civil merger enforcement—more aggressively than their predecessors.[1] Thus, while it seems unlikely based upon the text released, it is certainly possible that the more flexible approach to merger analysis reflected in the revisions will provide the basis for a more aggressive approach by the Agencies—a possibility that will certainly become clearer as the Proposed Guidelines are applied in practice to future mergers.
The draft of the Proposed Guidelines is available for download from the FTC’s website, at www.ftc.gov/os/2010/04/100420hmg.pdf. The Agencies are accepting public comments until May 20, 2010. Additional information about the draft, along with instructions for submitting comments, is available at http://www.ftc.gov/bc/workshops/
hmg/index.shtml.
- See, e.g., Christine Varney, “Vigorous Antitrust Enforcement in this Challenging Era,” (speech delivered May 11, 2009, available at http://www.justice.gov/atr/public/speeches/
245711.htm).
[Back to reference]
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.
