📝 usncan Note: Reducing Merger Uncertainty Could Help The American Economy
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Donald Trump (L), owner of the New Jersey Generals, of the U.S. Football League, said 10/18 his league’s $1.32 billion antitrust suit against the national Football League will crack “one of the great monopolies in the is country.” At right is his attorney Roy Cohn.
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The second Trump Administration is signaling a move away from the Biden policy of actively discouraging mergers. This change in direction could benefit the American economy. But some merger uncertainty remains, rooted in the new Administration’s decision to retain 2023 Biden merger guidelines. Targeted revisions to those guidelines – or, at the very least, public pronouncements designed to clear up confusion about current antitrust assessment of proposed mergers – might prove helpful in spurring beneficial mergers that could strengthen the U.S. economy.
Bipartisan Mergers and Acquisitions Guidelines
A bipartisan consensus on federal antitrust review of mergers existed from the 1980s until the Biden Administration. Merger guidelines issued by the federal antitrust enforcers, the Department of Justice and the Federal Trade Commission, cemented this consensus. DOJ-FTC merger guidelines, first issued in 1982 and revised in 1984, 1992, 1997, and 2010 to reflect new economic learning, were key to this consensus approach. (DOJ guidelines issued in 1968 used a simplistic approach that was abandoned in later guidelines.) Guidelines issued by the Biden Administration in December 2023 significantly departed from that consensus.
The pre-Biden guidelines, drawing on economic analysis applied by agency economists, provided key information for the private sector on how the DOJ and the FTC would assess potential mergers in applying Section 7 of the Clayton Antitrust Act. Section 7 prohibits mergers whose effects “may be substantially to lessen competition, or to tend to create a monopoly.” The guidelines viewed this language as aimed at preventing transactions that would enhance market power.
The 2010 guidelines echoed prior versions in stating that the DOJ and the FTC “seek to identify and challenge competitively harmful mergers while avoiding unnecessary interference with mergers that are either competitively beneficial or neutral.” This statement reflected an understanding that M&A activity substantially benefits the economy, and should not be interfered with except in cases of likely competitive harm – a point underscored in enforcement agency speeches over the years.
2023 Merger Guidelines
The Biden Administration rejected 4 decades of bipartisan understanding in adopting an inherently skeptical approach toward mergers. From the start, “[t]he Biden-era agencies . . . undertook long merger reviews, burdened merging parties with expensive yet questionable ‘second requests’ [for additional information on proposed mergers], and bragged about deal proposals that never left the boardroom”.
Speeches by DOJ and FTC leaders embodied an anti-merger philosophy that “created a chilling effect” for merger transactions.
This merger skepticism permeates the 2023 merger guidelines, which mark a dramatic departure from the general approach of predecessor guidelines dating back to 1982.
The new guidelines center describe 6 different theories of anticompetitive harm that could generate a merger challenge, unlike earlier guidelines, that provided a single integrated approach for analyzing mergers.
University of Chicago Professor Dennis Carlton, one of the most distinguished antitrust economists, emphasized that the new guidelines reduce practical economic guidance for the private sector and appear to be hostile to mergers and efficiencies.
Notably:
- The 2023 guidelines abandon prior language that enforcers only want to stop anticompetitive mergers, not to discourage mergers that raise no substantial competitive problems.
- They cite dated 1960s and 1970s Supreme Court merger holdings critical of mergers. Those holdings are out-of-step with subsequent non-merger Supreme Court decisions that focus on consumer welfare promotion and economic analysis as central to antitrust.
In addition, the 2023 guidelines:
- Abandon the language in prior guidelines that enforcers only want to stop anticompetitive mergers rather than discouraging others.
- Downplay the role of mergers in creating efficiencies.
- Lower the market concentration thresholds that trigger a presumption of anticompetitive effects, potentially subjecting more mergers to challenge.
- Suggest a possible merger challenge based solely on a merger that creates a market share of 30% or more – a long-abandoned purely “structural” approach that ignores actual market-specific economic effects.
- Introduce novel theories of competitive harm.
- Appear to reduce the risk level needed to trigger a merger challenge.
The last point is particularly significant, as retired DOJ antitrust economist Alexander Raskovich points out:
“Perhaps the most substantial proposed expansion of flexibility in the 2023 Merger Guidelines is the shift in language from a likelihood of competitive harm standard in previous merger guidelines to a risk of illegality standard, with a focus on circumstances where mergers ‘[c]an [v]iolate the [l]aw,’ but with little explication of how high a risk of illegality would trigger an agency challenge. Put succinctly, the standard has become ‘could,’ not ‘would.’”
Taken together, compared to the pre-Biden era, these changes ushered in a tougher approach to merger enforcement and an increase in business uncertainty about merger risks – factors that could have discouraged beneficial merger activity.
Trump Administration and the 2023 Guidelines
The Trump Administration states that it is dedicated to rejecting the Biden anti-merger perspective and providing more “fairness and predictability” to merger review. Retention of the 2023 Guidelines in their entirety could complicate that task, however, due to the inherent risks they pose for business planners.
Trump antitrust enforcers are resource-constrained and drafting new guidelines is a time-consuming task. Targeted tweaks to guidelines language, however, designed to reduce unwarranted business risk without making major substantive changes, might be feasible. Simple tweaks could, for example:
- Restore traditional language that the guidelines’ aim is not to interfere with mergers that do not pose a serious competitive threat.
- Market concentration will not be the sole determinant of the decision to challenge a merger, rather, economic assessment of market-specific facts will also be given weight.
- The agencies will be concerned with whether a merger likely would violate the law, and will not base a challenge based on the mere possibility that it could violate the law.
- The agencies will take into account merger-specific procompetitive efficiencies in deciding whether a transaction is likely to substantially reduce competition.
If the FTC and the DOJ prefer not to make any guidelines revisions at this time, agency leaders could instead issue major speeches on how the guidelines will be applied. The speeches could underscore the Administration’s desire to reduce business uncertainty, citing factors such as the “tweaks” highlighted above (plus any other factors that could reduce business risk).
The Administration may want to keep in mind that while merger guidelines are not legally binding, they may have a significant influence on boardroom decisions. Clarification of merger policy could provide major dividends for the American economy.
