On April 20, 2010, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice jointly released their proposed revisions to the Horizontal Merger Guidelines for public comment. The updated guidelines are the result of a series of joint public workshops over the past six months, as well as the agencies' collective experiences since 1992, when they last revised the guidelines. The proposed revisions reflect the agencies' current approach to review of horizontal mergers, that is, mergers between actual or potential competitors, including refinements previously identified in their 2006 "Commentary on the Horizontal Merger Guidelines." Interested parties may submit comments on the proposed revisions through May 20, 2010.
The proposed guidelines reflect current practice by the agencies, as well as clarify the current guidelines. Highlights of the proposed guidelines include:
- Government Analysis Is Fact-Specific. The
government's merger analysis does not use a single methodology,
but is a fact-specific process through which the agencies use
various tools to analyze whether a merger may substantially lessen
competition. The agencies' analysis is intended to be
flexible.
- Market Definition Is a Means to the End, Not the
End. Market definition, which identifies the area of
effective competition between the merging companies—and
through it, the market's size, participants and degree of
concentration—is a tool the agencies use to the extent it
may predict a merger's likely competitive effects. Market
definition is a part of, but not the result of, the analysis. In
some cases, determining market definition may not be
necessary.
- Evidence of Head-to-Head Competition Is
Critical. The agencies place great weight on evidence of
head-to-head competition between the merging companies, that is,
the extent to which one merger partner has in the past responded
directly to the other's prices, product launches, technical
innovations and marketing and advertising campaigns. This evidence
is typically in the documents and data contemporaneously created
and regularly used by the companies' managers. During merger
review, in decisions whether to challenge a transaction, the
agencies give no weight to company presentations that ignore these
documents and data. Thus, where the companies believe the
government is likely to investigate a proposed merger, company
counsel should review this internal documentation as early as
possible during negotiation and due diligence.
- Key Customers Should Be on Board. The agencies
seek the views of important customers of the merging companies.
Where there is strong evidence that key customers regard the
merging companies as the closest competitors in the relevant
market, the agencies may challenge the transaction, despite the
existence of more distant competitors. Accordingly, merger planning
should include an early and well-thought-out program to educate key
customers about the competitive benefits of the proposed
merger.
- Industries That Use Bargaining and Auctions May Face
More Detailed Scrutiny. The agencies pay special attention
to markets that are characterized by bargaining and auctions
between buyers and sellers, usually of intermediate goods. They
believe that the anticompetitive effects in these markets are
likely proportional to the frequency with which, before the merger,
one of the merging parties had been runner-up when the other won
the business. Here too, early customer education may be critical to
successful merger review.
- Degree of Concentration Is a Significant Factor in Determining Anticompetitive Effect, but Thresholds Increase. The degree of concentration in the relevant market, both before and after a proposed merger closes, continues to play an important role as an signal of the merger's anticompetitive (or lack of anticompetitive) effect. On this point, the proposed guidelines increase the relevant market concentration thresholds, called the Herfindahl-Hirschman Index, which adds together the square of the market concentration, out of a total of 100 for the entire market, of each of the players in that market. As described in the table below, "Unconcentrated Markets"—those in which anticompetitive effects are unlikely—increase from below 1000 to below 1500. "Moderately Concentrated Markets"—those that raise potentially competitive concerns—increase from between 1000 and 1800 to between 1500 to 2500. "Highly Concentrated Markets"—those in which mergers potentially raise significant competitive concerns—increase from above 1800 to above 2500. Although these increases suggest a more tolerant attitude toward horizontal mergers, in reality they reflect the agencies' current practice.
Market |
Current Threshold |
Proposed Threshold |
Unconcentrated |
<1000 |
<1500 |
Moderately Concentrated |
1000-1800 |
1500-2500 |
Highly Concentrated |
>1800 |
>2500 |
Additional Information
This Update is only intended to provide a summary of the proposed Horizontal Merger Guidelines. Read the full text of the Federal Trade Commission and Department of Justice's proposed guidelines .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.