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Biden administration unveils draft changes to US merger review guidelines

<i>Evelyn Hockstein/Reuters/FILE</i><br/>The Biden administration on Wednesday released a set of long-anticipated draft updates to the nation’s merger guidelines. President Joe Biden is pictured here on July 9.
Evelyn Hockstein/Reuters/FILE
The Biden administration on Wednesday released a set of long-anticipated draft updates to the nation’s merger guidelines. President Joe Biden is pictured here on July 9.

By Brian Fung, CNN

(CNN) — The Justice Department and the Federal Trade Commission on Wednesday released a set of long-anticipated draft updates to the nation’s merger guidelines, introducing potentially comprehensive changes to the way the US government reviews mergers and acquisitions for the first time in more than a decade.

The proposed changes could lead to major shifts in how the US government identifies — and tries to block or alter — deals it believes are anticompetitive.

The draft updates affect what legal experts have described as a non-binding yet authoritative regulatory bible, illustrating how US agencies are reframing their approach in an era of rising corporate consolidation.

For example, a more explicit and in-depth focus on labor markets could sharpen regulatory scrutiny of acquisitions US officials believe could harm worker pay, benefits or even schedules. Another part of the revised guidelines zeroes in on mergers involving “platform companies” — reflecting concerns about digital markets and tech giants whose large online platforms are used to connect internet users to e-commerce, entertainment and more.

“Unchecked consolidation threatens the free and fair markets upon which our economy is based,” said Attorney General Merrick Garland in a statement. “These updated merger guidelines respond to modern market realities and will enable the Justice Department to transparently and effectively protect the American people from the damage that anticompetitive mergers cause.”

The new draft guidelines are not bright-line laws or regulations, and US antitrust enforcement will continue to reflect longstanding legal precedents, senior administration officials emphasized Tuesday in a call with reporters. The public will have until Sept. 18 to weigh in on the draft updates.

“These guidelines really represent a much more nuanced, on-the-ground view of the different ways in which illegal mergers can hurt people, including workers,” said one senior official, who was not authorized to speak publicly on the matter.

The proposal reflects how evolutions in technology, markets and business practices can bring different threats to competition than in decades past, at a time when regulators say they are receiving more merger filings than they can keep up with.

The draft changes also highlight the more assertive attitude that enforcers such as FTC Chair Lina Khan and DOJ antitrust chief Jonathan Kanter have brought to their jobs — albeit with mixed results.

Wednesday’s draft changes aim to replace two earlier documents that had guided regulators: a 2010 handbook devoted to mergers involving direct competitors and a 2020 document, subsequently withdrawn, focused on mergers of companies in separate parts of the same supply chain. One example of that type of deal, known as a vertical merger, would be Microsoft’s $69 billion proposed acquisition of video game publisher Activision Blizzard, which the FTC has challenged, so far unsuccessfully.

Vertical mergers have historically received less attention from regulators and the courts, but Wednesday’s draft guidelines explicitly say that the US government may consider certain kinds of vertical mergers to be harmful to competition.

The new draft takes a similar view toward mergers involving multiple smaller deals that may not raise red flags individually but that together could harm competition, or mergers that effectively block future rivals from getting off the ground — a concern raised previously in connection with Facebook’s purchases of Instagram and WhatsApp. The FTC is currently suing to unwind those deals.

“In many instances, the problem with a merger isn’t always that a company is buying a direct competitor, but it might be buying a company that threatens its dominance,” said another senior official, “either through disintermediation or through technologies that might disrupt and displace its position.”

The first senior official confirmed that some of the US government’s current or recent cases already reflect the thinking outlined in the new draft document, though the official declined to name specific examples.

Spurred by an executive order signed by President Joe Biden in 2021, Wednesday’s draft updates are the result of more than a year of development. Thousands of consumers, businesses, state government officials, trade groups and academics weighed in on the DOJ and FTC’s initial request for information last January.

At the time, some agency critics expressed fears that the new draft could involve a wholesale departure from historical precedent under Khan and Kanter’s more aggressive approach to enforcement. For example, some raised questions about whether the agencies would abandon support for the consumer welfare standard, a longtime principle encouraging regulators to hold as their north star outcomes that maximize consumer benefits. (The new draft guidelines, a copy of which CNN reviewed, do not directly reference the consumer welfare standard.)

But even a more limited rewriting of the guidebook could still run into obstacles with the audiences that matter most: federal judges.

Wednesday’s announcement comes on the heels of a difficult week for antitrust enforcers. The FTC suffered back-to-back defeats in federal court over its bid to block the Microsoft-Activision deal, which has been described as the largest tech merger in history. And the Justice Department lost its appeal to block a multimillion-dollar merger between two major sugar producers in another closely watched case.

In another defeat this year, the FTC abandoned its opposition of a merger involving Facebook-parent Meta and a virtual reality startup after its challenge to the deal was rejected in federal court. The case had been viewed as a test of the FTC’s future-rivals theory, in which the agency accused Meta of trying to establish an unassailable empire in the still-nascent VR industry.

US regulators have won some notable victories, however. In recent months, the FTC successfully forced chipmaker Nvidia to abandon its proposed purchase of chip designer ARM, in another example of a vertical merger. The DOJ, meanwhile, sued to block an alliance between American Airlines and JetBlue, obtaining a court order in May preventing the companies from pursuing the agreement. And the Justice Department also won a major court victory last year against a proposed merger of book publishing giants Penguin Random House and Simon & Schuster, although that case was first brought in 2021 before Kanter joined the department.

Confronted by lawmakers about the FTC’s track record last week, Khan said the agency sues to block deals when it believes a violation of antitrust law has occurred.

“Unfortunately, things don’t always go our way,” Khan said in response to questions about whether the FTC has exceeded its authority. On Wednesday, Khan said in a release that the new draft merger guidelines “contain critical updates while ensuring fidelity to the mandate Congress has given us and the legal precedent on the books.”

The string of recent court losses raises the stakes for antitrust officials, who now seek to send an important signal to businesses and the courts about what they should expect from FTC and DOJ merger reviews.

In a related move on Wednesday, the Biden administration made several additional announcements aimed at bolstering competition nationwide, including decisions by Zillow, and to display in their rental listings the fees that landlords may seek to charge to renters. The Department of Agriculture also said it is launching a partnership with nearly three dozen states enhancing authorities’ ability to investigate competition in food and agricultural supply chains.

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