March 1, 2022

Antitrust: Implications of Recent Vertical Merger Challenges

This WilmerHale memo reviews recent FTC challenges involving vertical mergers and discusses some of the implications of those actions. Here’s the intro:

Since March 2021, the Federal Trade Commission (FTC or Commission) has challenged three proposed acquisitions based on vertical competitive concerns. The parties in two of those transactions—Nvidia/Arm and Lockheed Martin/Aerojet Rocketdyne—recently announced that they were abandoning the deals.

Following Nvidia’s abandonment, the Commission announced that the “result is particularly significant because it represents the first abandonment of a litigated vertical merger in many years.” The last time a party abandoned a vertical acquisition after the FTC sued was nearly two decades ago. Indeed, over the past decade, the FTC brought only six cases based on purely vertical concerns and entered a consent decree to resolve each of them without litigation.

The FTC’s recent challenges come at a time when the FTC’s Democratic commissioners have repeatedly articulated a focus on vertical mergers. In each case, the FTC acted unanimously to challenge the transaction, alleging that the acquisition involved the sole supplier (or, in Lockheed/Aerojet, the only non-vertically integrated supplier) of critical inputs for downstream competitors. Because these actions involved traditional vertical concerns, however, it remains uncertain how far the FTC will go in challenging vertical transactions based on novel or attenuated theories of competitive harm. And the FTC’s refusal to accept remedy proposals to address its competitive concerns may tell us more about the future than the challenges themselves.

The memo provides a list of factors that these recent proceedings suggest should be considered by companies that are either contemplating a vertical merger. For example, the memo says that parties looking at a deal involving a dominant input supplier and an important downstream competitor should expect their transaction to be the subject of a substantial investigation. Those parties need to be able to demonstrate that their proposed deal won’t provide the post-closing business with the incentive or ability to raise costs for or to cut-off other downstream competitors.

John Jenkins