Vertical mergers involve combinations of companies involved in different stages of the supply chain for a product or service, and it has been nearly 40 years since the DOJ & FTC last updated their guidance on transactions of this type. Since that’s the case, the agencies made news last week when they issued draft Vertical Merger Guidelines laying out their approach to these transactions. Here’s the intro from this Sullivan & Cromwell memo summarizing the draft guidelines:
For the first time in 36 years, U.S. antitrust regulators have published guidance concerning their analysis of vertical mergers (i.e., mergers between companies involved in different levels of the same supply chain). The guidelines, which have been issued in draft form for public comment until February 11, 2020, provide significant insights into the analyses that would be applied by U.S. regulators and will be significant for companies planning vertical combinations in many industries.
The guidelines could substantially change (i) the way in which vertical mergers are assessed in allocating antitrust risk in the context of merger negotiations; (ii) the number of vertical mergers subjected to lengthy investigations by the regulators; and (iii) the number of vertical mergers that lead to enforcement actions.
The draft guidelines decline to adopt a standard under which regulators would view vertical mergers as presumptively lawful or unlawful, but propose, among other things, a 20% “screen” that would serve as a preliminary indicator of whether a vertical merger warrants scrutiny (i.e., if the merged firm has a less than 20% share in a relevant market and a less than 20% share in a market vertically “related” to the relevant market, the regulators are unlikely to view the merger as problematic). Although the “screen” is informative, the guidelines emphasize that enforcement decisions will continue to be subject to a fact-specific competitive effects analysis in each case.
– John Jenkins