Antitrust M&A: How Will 2023’s Turbulence Affect Dealmakers in the Coming Year?

It was a momentous (and tumultuous) year for the Biden Administration’s antitrust M&A agenda, with increased litigation to block deals resulting in both high-profile wins and painful losses, issuance of new Merger Guidelines that re-calibrate the government’s position on how to analyze deals, and a proposal to fundamentally restructure the information parties must provide to comply with the up-front Hart-Scott-Rodino (“HSR”) pre-merger notification requirements.

These actions furthered the aggressive antitrust enforcement agenda that the Biden Administration has asserted from the beginning of its tenure. Less than six months after taking office, President Biden issued his “Executive Order on Promoting Competition in the American Economy” (July 9, 2021, the “EO”), establishing a “whole-of-government effort” to address competition concerns and direct federal agencies to commit to stronger and more vigorous enforcement of the federal antitrust laws.¹ The EO expressed an expansive view of the importance of antitrust, opining that perceived “excessive market concentration threatens basic economic liberties, democratic accountability, and the welfare of workers, farmers, small businesses, startups, and consumers.”

The M&A-related efforts of the Federal Trade Commission and the Department of Justice (together, “the Agencies”) demonstrated a firm adherence to the EO’s mandate. Indeed, FTC Chair Lina Khan recently emphasized that “policing unlawful mergers is our front line of defense against harmful corporate consolidation.”²

The extent of the Administration’s impact on dealmaking, however, is subject to debate. The Administration asserts that its efforts in blocking deals (regardless of wins vs. losses) resulted in a chilling effect—with the head of the Antitrust Division stating, “Simply put—most anticompetitive deals are no longer getting out of the boardroom.”³ Others, pointing to the government’s mixed record in court, argue that more extensive antitrust reviews (and possible litigation) are simply costs that must be factored into the overall deal analysis and that any slowdown in deal activity is the result of economic factors, not fear of antitrust enforcement.

That debate will not be resolved given that each deal rises and falls on its own merits and circumstances. Nevertheless, dealmakers should take note of the following key events and trends from 2023 that will continue to affect antitrust reviews of deals in the coming year.

A. Revised Merger Guidelines

On December 18, the Agencies jointly issued their 2023 Merger Guidelines.⁴ The document describes the factors the Agencies consider when reviewing mergers and acquisitions. It follows a long practice of the Agencies issuing such guidance, with versions dating back to the 1980s.

The 2023 Guidelines constitute 51 dense, single-spaced pages covering myriad legal and economic theories of harm. While extensive, the key takeaways for dealmakers to consider include:

1. Lower thresholds for a “presumption” of harm. The government can establish a presumption of harm by showing that a transaction will lead to undue concentration in the market. The 2023 Guidelines lower the HHI-based threshold⁵ for the Agencies to presume a deal is anticompetitive.⁶ While this change will ensnare more transactions, dealmakers should know that these presumptions are not determinative:

• A presumption is only as good as the market on which it is based. The definition of the relevant market is, of course, critical to determine market shares.
• A presumption is just a presumption; it does not mean that a deal is illegal. The merging parties can rebut the presumption with evidence showing why the merger is unlikely to harm competition.

Importantly, courts apply the presumption-based burden-shifting framework flexibly so that, in practice, the commercial realities drive the result based on analysis of the entirety of marketplace facts, not formulaic presumptions.

2. Vertical mergers. The 2023 Guidelines are the first set of Agency merger guidelines that address both horizontal (direct competitor) and vertical (different levels of supply chain) deals in the same document. The Administration has been clear about wanting to challenge more vertical transactions in order to advance the law in this area, and we expect the Agencies to continue to closely examine deals that raise vertical concerns.

3. Labor markets. Courts and enforcers have long recognized that businesses compete not only for “downstream” sales to customers but also for “upstream” purchases of inputs. A centerpiece of the Administration’s antitrust push has been to emphasize that antitrust laws protect labor. The 2023 Guidelines have an entire section focused on assessing when a merger may reduce competition for workers, creators, suppliers or other providers. This is an area, though, that is not well developed in the caselaw. Accordingly, the Agencies will surely be looking to test (and develop) labor-related theories in future merger reviews.

4. “Context” of acquisitions: The 2023 Guidelines emphasize the need to look at the broader “context” of a merger instead of simply examining the effects of just the deal under review. The Agencies will consider patterns of serial acquisitions (“roll-ups”) or acquisitions by a dominant firm of potential future competitors. In such situations, the Agencies state that they will consider the collective or cumulative effect of the pattern of acquisitions. But it remains to be seen where the line will be drawn when a specific deal does not in isolation raise a competition concern but might be part of a pattern.

5. Rebuttal evidence/efficiencies. The 2023 Guidelines discuss certain types of rebuttal evidence that parties can employ to show that a merger does not threaten a substantial lessening of competition, including “failing firm,” ease of entry/repositioning, and procompetitive efficiencies. The Agencies stress that, while they recognize these defenses, they will place a high burden on the merging parties to substantiate any such claims. We expect the Agencies to continue to push back on efficiency arguments (but courts may be more sympathetic).

The above is just the tip of the iceberg, with the 2023 Guidelines further providing the Agencies’ views on topics such as mergers that:

• eliminate potential entrants;
• entrench or extend a dominant position;
• involve multi-sided platforms or cluster markets; and
• involve partial ownership/minority interests (which is of particular relevance for private equity investors that acquire interests in competing companies through different funds).

In short, antitrust counsel will need to address the theories raised in the 2023 Guidelines as part of the Agency merger-review process.

B. Increased Litigation

The courts, though, will remain the ultimate arbiter of whether a deal violates the law. The US antitrust agencies cannot on their own force companies to abandon or change a merger. The Biden Administration has been aggressive in challenging deals in court, spanning deals in industries such as airlines, agriculture, healthcare, pharma, tech, book publishing, and consumer products and services.

The 2023 litigation track record, though, has been mixed. The courts dealt some significant losses to the Agencies. For example, the U.S. Court of Appeals for the Third Circuit squarely rejected the DOJ’s appeal of its unsuccessful challenge to the US Sugar/Imperial Sugar merger. The loss was a particular blow to the Agencies in that the District Court and the Third Circuit credited the trial testimony of a US Department of Agriculture economist, whose views aligned with the merging parties’ positions. This result raised questions about the effectiveness of EO’s “whole of government” approach to addressing concentration. Other notable government litigation losses include high-profile challenges to the Meta/Within and Microsoft/Activision transactions.

But, the government had major victories as well. The DOJ had a decisive win to block a joint venture between American Airlines and JetBlue Airways. The district court agreed with the government’s position that the JV had the effect of anticompetitively reducing competition between the two airlines, much like the impact that a merger would have. As of the date of this article, that decision is on appeal. The FTC had a joyful end-of-the year win with the U.S. Court of Appeals for the Fifth Circuit upholding the FTC’s views that a vertical deal combining Illumina and Grail could cause anticompetitive effects. Although the Fifth Circuit sent the case back to the FTC for further proceedings after determining that the Agency used the wrong legal standard at the rebuttal stage of the analysis, the case is effectively over as Illumina announced that it would unwind the deal given the Fifth Circuit’s decision. Also in December, the FTC obtained a preliminary injunction to prevent IQVIA Holdings Inc. from acquiring Propel Media, Inc., and two other transactions—John Muir’s takeover of San Ramon Regional Medical Center from Tenet Healthcare, and Sanofi’s acquisition of Maze Therapeutics’ Pompe disease drug—were abandoned following FTC challenges.

It is difficult to draw substantive conclusions from these litigation wins and losses, as each case is decided on its own merits by individual judges. That being said, a clear takeaway is that the Biden Administration is not afraid to litigate. So, parties to deals in 2024 will continue to need to account for the possibility of litigation against the government.

C. The Rise of Settlements?

Not all deals that raise competition issues result in litigation. Indeed, only very few litigated cases are filed each year. Traditionally, parties resolved competition concerns raised during antitrust reviews by entering into negotiated settlements with the government. The typical remedy involved the public filing of a consent decree that would require the merging parties to divest overlapping assets or a line of business as a condition to closing the overall merger. (Remedies could also include other provisions designed to address the specific competitive concerns at issue.) The public documents would explain the Agency rationale for insisting on a remedy and contain provisions to ensure that the remedy was effectuated.

The Biden Administration—particularly officials at the Department of Justice—signaled early on that they considered blocking a deal outright preferable to negotiating remedies.⁷ The number of consent decrees that the Agencies entered into with merging parties dwindled to near zero.

Courts, though, sent a message throughout 2023 that traditional remedies continue to have value in antitrust cases, as judges endorsed remedies that parties offered directly to the court (sometimes called “litigating the fix”) and some courts encouraged the government to settle merger cases by agreeing to divestitures. For example, in Assa Abloy/Spectrum, the DOJ agreed to a divesture only after the court on the record pressed the parties to settle. Additionally, courts endorsed remedies offered by parties in both United Health/Change and Microsoft/Activision. That message appears to be resonating, as the FTC has settled two litigated merger challenges—ICE/Blacknight (divestiture) and Amgen/Horizon (commitment not to engage in certain conduct)—with remedies that are similar to the types of remedies that prior administrations had used. These traditionalist-style remedies could signal a less confrontational approach to antitrust review going forward.

Moreover, a new phenomenon appears to be occurring at the DOJ: the rise of so-called “secret settlements.” In a December 2023 joint report to Congress, the Antitrust Division described how its “enforcement efforts” directly impacted mergers, including six transactions in which “the parties changed the structure of their transaction such that the Division chose not to bring an enforcement action at that time.”⁸ The Division did not identify the matters, the competitive concerns that were raised, or how the remedy addressed those concerns. Nevertheless, the process seems similar to traditional remedies, just without the public process. Parties should consider such an approach in future transactions when the circumstances warrant it.

D. The Proposed Changes to Antitrust Pre-Merger Notification Rules

The Administration is also finalizing proposed revisions to the HSR pre-merger notification filing requirements. Assuming the final rule matches the notice of proposed rulemaking issued in June 2023, the revisions will fundamentally transform the HSR process. Parties to every HSR-reportable transaction will be required up front to provide detailed narratives about their deals, extensive amounts of documents and information (including about employees), and reams of data.

The proposed rule would apply to all “reportable” transactions—those that exceed the statutory threshold for “size of transaction” (which threshold is $111.4 million as of the date of this article, but increases on an annual basis) and other tests—regardless of whether the deals actually raise any competition concerns.

In essence, the revisions will convert the US system from an objective “notice” filing protocol to a more subjective framework, which will require parties to provide up-front disclosures.

The new requirements are far-reaching. (For a detailed discussion of all the requirements, see our Legal Update, “FTC’s Proposed HSR Changes Will Complicate Merger Filings”.) Several aspects are particularly important for US dealmakers to appreciate, including that parties to all reportable deals will have to provide:

• details about the structure of the transaction, its business rationale, and the entities involved in it;
• narrative descriptions of the markets in which the parties operate and potential effects of the deal;
• a vastly expanded set of deal-related documents, as well as ordinary-course strategic plans and reports; and
• information that screens for labor market issues by classifying employees based on certain job categories and geographic location and details on workplace safety violations.

The proposed rules have attracted significant attention, including a protest to Congressional leaders from the US Chamber of Commerce on behalf of over 30 business groups.⁹ The FTC has not provided a timeline for issuance of a revised, final rule. If the final rule tracks the proposal, the changes will require significant additional work, with the FTC predicting that conformity to the proposed rules would result in anywhere from approximately 12 to 222 additional hours per filing. Many practitioners believe that the time required to comply will be much greater.

The Impact on Dealmakers

The above trends will continue to make the antitrust review process challenging in 2024. It will be incumbent on deal teams to think through how the current regulatory environment impacts their transactions and take appropriate steps to address (and streamline data collection processes) and, where possible, minimize the risk.

The Administration’s antitrust enforcement efforts have led parties to anticipate longer merger review timelines, more frequent second requests, and a higher likelihood that litigation against the government will be needed in order to get deals closed. The proposed HSR revisions, if implemented, will further complicate deal timelines for the merger review process.

As a result, the negotiation of deal terms addressing antitrust risk take on added importance. Such terms include:

• longer outside dates;
• reverse termination fees;
• use of ticking fees and other creative tools to lessen sell-side risk;
• negotiating remedies into the acquisition agreement; and
• efforts covenant (although “hell or high water” provisions are rare).

For a detailed discussion on how these terms are used and scale with antitrust risk, see our Legal Update, “M&A Lawyers Adapt to New Era of Antitrust Enforcement: How Contractual Provisions Are Evolving”.

The antitrust impact, while important to assess, does not have to be determinative of whether deals move forward, as the vast majority of transactions are still getting to the finish line even in this period of aggressive antitrust enforcement.

¹ Executive Order on Promoting Competition in the American Economy, WHITE HOUSE (July 9, 2021) https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/.

² Federal Trade Commission and Justice Department Release 2023 Merger Guidelines FED. TRADE COMM’N (Dec. 18, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/12/federal-trade-commission-justice-department-release-2023-merger-guidelines.

³ Jonathan Kanter, Assistant Attorney General Jonathan Kanter Delivers Opening Remarks at the Second Annual Spring Enforcers Summit (March 27, 2023), https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-opening-remarks-second-annual-spring.

⁴ 2023 Merger Guidelines, DEP’T OF JUST. AND FED. TRADE COMM’N, (Dec. 18, 2023), https://www.justice.gov/atr/2023-merger-guidelines.

⁵ The HHI is the Herfindahl-Hirschman Index of market concentration, which consists of the sum of the squares of the market shares of the competitors in the relevant market. The change in the HHI measures the impact of a merger in terms of the shares of the merging competitors.

⁶ The Agencies now assert that a transaction should be presumed harmful if (1) the post-merger market-wide HHI is greater than 1,800 and the change in HHI from the transaction is greater than 100 points, or (2) the merged firm’s market share is greater than 30% and the change in HHI is greater than 100. 2023 Guidelines at 6.

⁷ “I am concerned that merger remedies short of blocking a transaction too often miss the mark. Complex settlements, whether behavioral or structural, suffer from significant deficiencies. Therefore, in my view, when the division concludes that a merger is likely to lessen competition, in most situations we should seek a simple injunction to block the transaction. It is the surest way to preserve competition.” Jonathan Kanter, Assistant Attorney General Jonathan Kanter of the Antitrust Division Delivers Remarks to the New York State Bar Association Antitrust Section (Jan. 24, 2022), https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-antitrust-division-delivers-remarks-new-york.

⁸ Hart-Scott-Rodino Annual Report Fiscal Year 2022, FED. TRADE COMM’N AND DEPT. OF JUST. (Dec. 21, 2023) at 3, https://www.ftc.gov/system/files/ftc_gov/pdf/FY2022HSRReport.pdf.

⁹ Coalition Letter on the Hart-Scott-Rodino (HSR) Act Standards, U.S. CHAMBER OF COMMERCE (NOV. 14, 2023) https://www.uschamber.com/finance/antitrust/coalition-letter-on-hart-scott-rodino-hsr-act-standards.