FTC and DOJ Issue New Antitrust Guidelines for Companies Planning to
Merge With or Acquire a Competitor

The Federal Trade Commission (FTC) and Department of Justice (DOJ) recently updated their guidance on evaluating mergers and acquisitions involving competitors (or potential competitors) under the federal antitrust laws. Though intended to provide businesses with a degree of predictability, some commentators have suggested the new guidance is an attempt by the agencies to provide themselves with more flexibility when challenging transactions.

The FTC and the DOJ originally issued the Horizontal Merger Guidelines in 1992 and merger enforcers and the courts generally consider the guidelines highly influential. According to the agencies, they intend that the revised guidelines more accurately reflect the agencies’ current approach to merger reviews. However, they emphasize that no single methodology is appropriate for all transactions. Instead of providing an analytical process with distinct steps, the revised guidelines outline factors relevant to the "fact specific" review process while emphasizing the flexibility with which the agencies will consider and apply the factors. Only time will tell if courts will agree.

Notably, the guidelines change the role of market definition. While antitrust lawyers and the courts have long presumed that one of the critical threshold considerations is the definition of the applicable product and geographic markets, the revised guidelines assert that the agencies no longer view market definition as an "end in itself." Rather, it is one of many analytical tools that they will use.

The revised guidelines also update the agencies' use and consideration of market concentration as a reason to challenge a particular transaction. The agencies will continue to classify the applicable market as "unconcentrated," "moderately concentrated" or "highly concentrated" before considering how market concentration will be impacted by the proposed merger. The agencies have, however, increased the criteria for classifying markets as "concentrated" (moderately or otherwise), meaning fewer transactions will be subject to challenge due to market concentration than would have been the case under the old guidelines.

In a new section called "Evidence of Adverse Competitive Effects," the agencies outline the types and sources of information they will consider when reviewing mergers. While merging parties will have substantial opportunities to provide valuable information, the agencies also will take into account:

· the effects observed in consummated mergers within the industry;

· information from customers and suppliers concerning the proposed merger; and

· the parties' pre-existing documents (as opposed to advocacy materials submitted to the agencies for purposes of obtaining government approval for the merger).

The revised guidelines provide a simplified discussion of the agencies' consideration of whether a merger's competitive harm may be offset by entry of new firms in response to a small but significant price increase by the merging entity. The guidelines now emphasize that the agencies will give "substantial weight" to actual attempts by firms to enter the relevant market, whereas the old guidelines consider such attempts to be a "useful starting point."

The revised guidelines now also address the presence of powerful buyers within the marketplace. The agencies, for example, now acknowledge that any threat to competition presented by a merger of competing sellers may be mitigated in markets impacted or controlled by powerful buyers. The guidelines outline the manner in which the agencies will review and potentially challenge mergers of competing buyers, which the agencies note can "enhance market power" in much the same way as can mergers among competing sellers. Thus, when acquiring or merging with a competitor, businesses must now consider whether the transaction will give them unlawful market power with respect to either purchases or sales.

Finally, the revised guidelines reflect the factors and concerns that may lead the agencies to challenge even a partial acquisition of a competitor. While the agencies will consider any potential competitive effect resulting from a partial acquisition, the agencies will pay particular attention to whether the acquiring firm will have:

· the ability to influence the competitive conduct of the target firm;

· less of an incentive to compete with the target firm as a result of the acquisition; and/or

· access to the target firm's non-public, competitively sensitive information.

If any of these three factors are present, the agencies may challenge even a partial (non-controlling) acquisition of a competitor.

View the complete text of the revised Horizontal Merger Guidelines. If you have any questions about the guidelines or would like to discuss how they may impact your next merger or acquisition, please contact Tony Aaron or George Gasper.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.

Nov. 17, 2010