The FTC & DOJ just issued the final version of their Vertical Merger Guidelines. As I mentioned when I wrote about the draft guidelines issued last January, this represents the first update to these guidelines in nearly 40 years. Here’s an excerpt from Wachtell’s memo on the final version:
The new Guidelines clarify the agencies’ analytical practices and en-forcement policies, and provide illustrative examples of transactions that may raise competitive concerns. The Guidelines primarily focus on unilateral theories of harm that the agencies commonly investigate in their review of vertical mergers, including the ability and incentive of a combined firm to raise its rivals’ costs or foreclose their access to essential inputs, distribution channels, or complementary products.
Vertical mergers may also raise unilateral concerns when they provide the combined firm with access to competitively sensitive information about its upstream or downstream rivals, or make entry by a potential competitor more difficult by requiring entry at different levels of the supply chain or by foreclosing access to a necessary asset. Similarly, non-horizontal mergers may eliminate nascent competition by combining complementary products or an established firm with an emerging player in an adjacent market.
The inclusion of these theories of harm in the Guidelines signals a convergence with other jurisdictions, such as the EU, where they are often considered by antitrust regulators. In addition, the Guidelines discuss the ways in which a vertical merger may make coordinated interaction among firms more likely.
Although the guidelines say that “vertical mergers are not invariably innocuous,” they acknowledge that these transactions create efficiencies that are beneficial to consumers, and indicate that efficiencies are an important part of the merger review process.
One potentially important change from the draft guidelines is that the final guidelines eliminate a proposed “quasi-safe harbor” for vertical mergers in which the parties have less than a 20% share of upstream and downstream markets. The memo says that this aspect of the draft guidelines had apparently drawn criticism from the FTC’s Democratic commissioners, but in any event, it’s elimination wasn’t sufficient to sway them — both voted against the final guidelines.
-John Jenkins, DealLawyers.com July 2, 2020
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