September 29, 2021

Antitrust Merger Review: There’s a New Sheriff in Town

This Fried Frank memo discusses the FTC’s rapidly evolving approach to merger review and enforcement, and makes it clear that there’s a new normal when it comes to the FTC’s priorities. Here’s the intro:

In a memorandum issued to the Federal Trade Commission (FTC) staff last week, Lina Khan, the new Chair of the FTC, indicated that the agency’s priorities and approaches in reviewing proposed M&A deals will differ from those in the past. Kahn stated that the FTC, rather than viewing its work in two “silos” relating to antitrust and consumer protection, will be reviewing deals “holistically” and taking an “integrated approach” to the harms that “Americans are facing in their daily lives.”

She explained, for example, that the agency will focus on whether there are “power asymmetries” leading to “harms across markets, including those directed at marginalized communities,” and whether the business models and structures used will “incentivize or enable” unlawful conduct. Further, she stated that, given “the growing role of private equity and other investment vehicles,” the agency will “examine how these business models may distort ordinary incentives in ways that strip productive capacity and may facilitate unfair methods of competition and consumer protection violations,” particularly when “these abuses target marginalized communities ….”

The memo goes on to point out that the FTC’s merger review won’t be based solely on conventional market-based analysis, but will also involve an assessment of the broader societal impacts of a transaction.  That appears to be already happening, as the memo notes that “in some deals the FTC has been seeking information during the second request stage of its investigations about topics such as unions, wages, the environment, corporate governance, franchising, diversity, and noncompete agreements.”

As further evidence of the changing environment, the FTC’s Bureau of Competition announced in a blog post yesterday that it was implementing a number of changes to the second request process that were designed to make it more streamlined and more rigorous. While several changes are being made, the expanded approach to merger review outlined in Chair Khan’s memorandum is front and center:

First, we are seeking to ensure our merger reviews are more comprehensive and analytically rigorous. Cognizant of how an unduly narrow approach to merger review may have created blind spots and enabled unlawful consolidation, we are examining a set of factors that may help us determine whether a proposed transaction would violate the antitrust laws.

Providing heightened scrutiny to a broader range of relevant market realities is core to fulfilling our statutory obligations under the law. To better identify and challenge the deals that will illegally harm competition, our second requests may factor in additional facets of market competition that may be impacted. These factors may include, for example, how a proposed merger will affect labor markets, the cross-market effects of a transaction, and how the involvement of investment firms may affect market incentives to compete.

John Jenkins