Hill Wellford, Gregory Wells, Oct 28, 2010
The new Horizontal Merger Guidelines, issued by the U.S. antitrust Agencies on August 19, 2010, mark a clear change from their 1992 predecessor.They reduce the importance of traditional market definition, increase Herfindahl-Hirschman Index (“HHI”) thresholds, and expand the types of evidence considered. Most commentary to date has focused on the fact that the new Guidelines largely codify hitherto-unofficial (although widely known) practices of Agency staff, and this is true, with some key exceptions. But such commentary suggests a no-big-deal view of the new Guidelines that misses something important.
The big development of the new Guidelines is that, read as a whole, they embrace three trends with the potential to make merger work significantly longer and less predictable. Those trends are (1) the pursuit of economic-analytical perfection; (2) the identification of ever-smaller groups of customers that might be subject to a discrete, unquantifiable, or even speculative harm; and (3) an indifference to the growing divergence between merger advocacy before the Agencies and merger litigation before the courts. If these trends continue, the 2010 Guidelines will turn out to be a big deal indeed.
The Agencies’ stated goal for the new Guidelines is to increase “clarity and transparency, and provide business with … greater understanding of how we review transactions.” This statement is more complex and controversial than it might immediately appear. If the focus is on the “we,” meaning the Agencies, and the “how,” meaning the process alone, then the 2010 Guidelines soundly accomplish the goal: they put merging firms on notice that the Agencies have changed their internal approach. But if the focus is on “clarity and transparency,” the new Guidelines’ impact is harder to judge. Merging firms are only tangentially interested in the “how” of the Agencies’ internal processes. What firms really want is “clarity and transparency” as to the ultimate outcome of a merger review. That requires something the Guidelines do not necessarily improve: better prediction of ultimate agency decisions and, in hotly contested cases, outcomes of litigation or at least of hard-fought consent decrees that will be negotiated in (and thus colored by) litigation’s shadow.
The Agencies can, if they wish, diverge from courts at the early staff stages of an investigation, but they cannot escape the impact of courts’ views at the endgame. As a result, merging parties may be well-advised to pursue dual strategies in their advocacy: an agency track in which they marshal evidence and models toward persuading Agency lawyers and (particularly) economists under the new Guidelines, and a litigation track in which they assemble a traditional market-definition case for a court. This does not sound like a recipe for “clarity and transparency,” or speed or low cost.
Much will depend on how the new Guidelines are implemented. It is too early to give a report on implementation, so, for now, we confine this article to a summary of the 2010 Guidelines and their changes from the 1992 version; a contrasting illustration of how courts recently have approached mergers; and a discussion of how the new Guidelines are likely to affect merger advocacy.
