DealLawyers.com Blog

Yesterday, the Federal Trade Commission released proposed new federal merger guidelines. The guidelines outline how the FTC and the Department of Justice review horizontal mergers, or mergers between actual or potential competitors, under the federal antitrust laws. The FTC will accept comments until May 20th.

Here is some analysis, courtesy of David Foster and Dan Wellington of Fulbright & Jaworski:

Without radically altering the analytical framework of the old guidelines, the new guidelines offer practical insight into how the enforcement agencies evaluate mergers. For example, in a new section called “Evidence of Adverse Competitive Effects,” the agencies note the importance of documents obtained from the merging parties (particularly documents “created in the normal course” rather than “as advocacy materials in merger review”) and of the views of customers affected by the merger.

In defining product and geographic markets, the guidelines suggest that the agencies will typically ask whether the post-merger firm could impose a price increase of as much as 10% before losing profits to competitors. The new guidelines stress flexibility, saying that merger review is a “fact-specific process” and that the agencies “apply a range of analytical tools.”

The new guidelines also update the agencies’ discussion of market concentration, which they generally measure by use of the Herfindahl-Hirschman Index (HHI). The HHI is the sum of the squares of each firm’s market share, meaning that a market divided equally among four sellers would have an HHI of 2,500 (25²+25²+25²+25²). The guidelines state that the agencies will consider markets “unconcentrated” if, after the merger, they have an HHI below 1,500 (an increase from a threshold of 1,000 in the old guidelines).

The new guidelines do not deem markets “highly concentrated” until they reach an HHI of 2,500 (formerly 1,800). A merger producing an increase of more than 200 points in the HHI and a post-merger HHI exceeding 2,500 will create a “presumption” of anticompetitive effect.

The proposed guidelines also add new sections on “powerful buyers,” whose presence in the market might offset competitive concerns; mergers between competing buyers, which can also harm competition; and partial acquisitions, such as the purchase of minority positions, which can have anticompetitive effects in some circumstances.