The Federal Trade Commission (FTC) and the Department of Justice (DOJ) have finalized new guidelines for determining merger and acquisition deals' compliance with antitrust law.
In the works since early last year, the 2023 Merger Guidelines take into account "modern market realities"—such as vertical and horizontal integration, platform competition and terms of conditions of employment—that threaten competition and workers across several sectors of the economy including healthcare, regulators said Monday.
“These finalized Guidelines provide transparency into how the Justice Department is protecting the American people from the ways in which unlawful, anticompetitive practices manifest themselves in our modern economy,” Attorney General Merrick B. Garland said in the announcement.
The 2023 Merger Guidelines are not legally binding and do not predetermine enforcement actions. They are intended to give industries a look into the regulators' decision-making process when reviewing a deal.
The agencies had released a draft version of the guidelines over the summer for public comment (see original story below), noting at the time that the existing guidelines weren't keeping pace with the changing economy.
Prior to the draft release, the agencies said they received over 5,000 comments highlighting "excessive market consolidation across industries" and "overwhelmingly" calling for stronger merger enforcement. Attendees of four listening sessions "similarly highlighted the potential for mergers and acquisitions to undermine open, vibrant, and competitive markets, in industries ranging from food and agriculture to healthcare," the regulators said.
Following the release of the draft guidelines, the government said it collected over 30,000 comments that were considered when developing a final version of the guidelines.
“Fair, open, competitive markets have been essential to America’s dynamic, thriving economy, and policing unlawful mergers is our front line of defense against harmful corporate consolidation,” FTC Chair Lina M. Khan said in a release. “The 2023 Merger Guidelines reflect the new realities of how firms do business in the modern economy and ensure fidelity to statutory text and precedent."
The draft was broadly viewed to be signaling a tougher stance on hot-button healthcare industry issues like consolidation. For example, the American Hospital Association (AHA), in submitted comments, took issue with the agencies' lowered structural presumptions and undervaluing of cost efficiencies achieved through mergers.
As the AHA and other industry groups take time to review changes to the final guidance's language, law firm Crowell & Moring wrote in a client alert post that the final guidelines "show that the agencies have responded to at least some of the criticism of the draft version, and may be more likely to align with how courts currently analyze merger challenges."
For instance, while the agencies stuck with the lowered post-merger concentration threshold proposed in the summer, this week's release softens the draft's "presumptive" language, the firm wrote.
"One of the areas of greatest concern regarding the July draft Guidelines was the notion that the Agencies were setting out hard and fast rules against certain types of mergers, for example by stating guidelines as 'mergers should not ….' Crowell wrote. "The final 2023 Guidelines soften that language – to 'mergers may violate the law when they …' and make clear in numerous ways that the Agencies’ theories of harm may be rebutted by the merging parties’ evidence."
Nathan Ray, a partner the healthcare and lifesciences team and its M&A lead at West Monroe, said the regulators could have done more to outline their mindset.
“The FTC guidelines would benefit from provided examples of issues and poor outcomes they are trying to avoid," he told Fierce Healthcare. "These guidelines do little to help a large strategic buyer clearly understand what they can acquire without higher incompletion risk, and do not clearly explain why certain deals that appear to be open for scrutiny have been approved with less than expected attention.
"Rather than guidelines that justify broader FTC action, clarity on approach to application and intent (and clarity on harm experienced or avoided) are still what would help the public and markets appreciate the efforts of the FTC on mergers,” he said.
July 19. 2023
FTC, DOJ propose new changes to guidelines for reviewing anticompetitive mergers
The Federal Trade Commission (FTC) and the Department of Justice (DOJ) released a draft update to merger guidelines, which they use to determine merger and acquisition deals’ compliance with antitrust laws, for public comment.
The proposed update has been in the works since early 2022 when the agencies launched a joint public inquiry into ways that federal regulators could better monitor a surge in merger filings and multi-industry market concentration.
“With these draft Merger Guidelines, we are updating our enforcement manual to reflect the realities of how firms do business in the modern economy,” FTC Chair Lina Khan said in a release. “Informed by [more than 5,000] public comments—spanning healthcare workers, farmers, patient advocates, musicians, and entrepreneurs—these guidelines contain critical updates while ensuring fidelity to the mandate Congress has given us and the legal precedent on the books.”
The changes outlined in the draft (PDF) would be the third update to FTC and DOJ’s Merger Guidelines during the 21st century. Prior updates included guidelines for horizontal mergers issued in 2010 and guidelines on vertical mergers issued in 2020.
Among the updates proposed Wednesday is a breakdown of the specific considerations that could arise when platforms are part of an acquisition, which the agencies described as a “distinct” competitive difference compared to the traditional market structures of the 20th century’s economy.
The draft also builds on previous guidelines’ attention to merger deals that would reduce competition among buyers, which would include buyers of labor services, the agencies said. It includes explicit language explaining that the agencies “will evaluate the impact of a merger on labor as a stand-alone basis to challenge a transaction,” according to a fact sheet.
Additionally, the draft tightens the market concentration threshold agencies use to determine whether merger deals should be challenged. To roll back “more permissive thresholds” adopted in 2010, the agencies proposed reviewing deals that yield a post-merger Herfindahl-Hirschman Index (HHI) of 1,800, as well as those that establish “a significant increase in concentration, such as a change in HHI greater than 200, or … other facts showing the merger would increase the pace of concentration.”
“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,” Assistant Attorney General Jonathan Kanter, of the DOJ’s Antitrust Division, said in a release. “Simply put, competition today looks different than it did 50—or even 15—years ago.”
Included at the outset of the proposed guidelines are 13 principles the agencies said they would use when determining whether a merger deal is unlawfully anti-competitive. These single-sentence statements include principles such as “Mergers should not increase the risk of coordination,” and “Mergers should not entrench or extend a dominant position.”
FTC and DOJ will be accepting comments on the draft Merger Guidelines for a period of 60 days ending Sept. 18.
The proposed updates are a key milestone in the regulators’ recent crackdown on economy-wide deal-making.
“Unchecked consolidation threatens the free and fair markets upon which our economy is based,” Attorney General Merrick Garland said in a release. “These updated Merger Guidelines respond to modern market realities and will enable the Justice Department to transparently and effectively protect the American people from the damage that anticompetitive mergers cause.”
President Joe Biden issued a sweeping executive order in the summer of 2021 for the agencies to take a closer look at merger deals, with specific mention of rampant consolidation within healthcare. Since then regulators haven’t shied away from challenging major healthcare and pharmaceutical deals they view as anticompetitive, although those efforts haven’t always panned out in the courts.
Part of that effort has been an overhaul of the policies and processes each agency has on the books regarding merger and acquisition deal review.
Both DOJ and FTC recently withdrew “outdated” and “overly permissive” healthcare antitrust policy statements they said no longer reflected market realities, a move panned by the industry as “unnecessary and reckless.”
Additionally, in late June, FTC proposed new changes to its pre-merger notification requirements that would require merging companies to give the regulator additional information about their proposed deal—which the agency estimated could quadruple the administrative burden of any given submission.
In a letter penned this week (PDF), the American Hospital Association, Federation of American Hospitals, Pharmaceutical Research and Manufacturers of America (PhRMA) and numerous other industry groups representing various sectors of the U.S. economy petitioned the FTC to extend the comment period for the proposed pre-merger notification requirements by an additional 60 days so that they could provide “more fulsome responses on a proposal that could reshape U.S. merger policy, business activity and capital markets.”