Janet McDavid, Eric Stock, Oct 28, 2010
On August 19, 2010, the Department of Justice and the Federal Trade Commission (the “Agencies”) released the final version of their revised Horizontal Merger Guidelines (“Guidelines”), which are used by the Agencies to analyze the competitive implications of mergers between direct competitors. Whereas the prior version of the Guidelines had sought to provide a precise, step-by-step framework for analyzing horizontal mergers-centered around defining a “relevant market” and measuring market concentration-the new revisions envision a much more flexible approach. The revised Guidelines de-emphasize market definition and the calculation of market shares, and can instead be likened to a “tool box” of techniques for analyzing the competitive implications of horizontal mergers. This new analytical approach has important implications for analyzing M&A transactions. It also indicates greater Agency scrutiny of such transactions in industries characterized by differentiated products and high levels of research and development (“R&D”) spending-such as the high tech and pharmaceutical industries.
Importantly, the methods for analyzing horizontal mergers and acquisitions that are set forth in the new Guidelines are not new-they reflect practices that the Agencies have used since the last version of the Guidelines was published in 1992. The new Guidelines are also generally consistent with the approach taken in the Merger Guidelines Commentary, which the Agencies published in 2006 during the Bush Administration. As a result, the new Guidelines are more of an effort to increase transparency rather than to effect fundamental change. Additionally, as demonstrated by a recent court ruling against the FTC, the impact of the Guidelines will also be restrained by the fact that courts hearing merger challenges will likely continue to consider market definition central to the antitrust assessment of mergers. Indeed, the final version of the Guidelines contains a statement emphasizing that the Agencies will ordinarily rely on market definition and market share arguments in a merger challenge.
Below we describe several changes to the new Guidelines that indicate greater scrutiny of transactions in high tech and pharmaceutical markets.