A New Global Antitrust Regime and Its Chilling Effect on Mergers

By: Alex Llanos

On July 19, 2023, the U.S. Department of Justice’s Antitrust Division (DOJ) and the Federal Trade Commission (FTC) released a draft of its new proposed merger guidelines. These guidelines are part of a global trend of increased scrutiny of merging firms and a push by antitrust agencies to provide more regulatory mandates and enforcement actions. In general, antitrust agencies are tasked with protecting consumer welfare, promoting market competition, and punishing collusive actors who perform anticompetitive acts. Antitrust law aims to protect the competitive process that fuels economic growth, promotes consumer welfare, and leads to innovation. However, an increase in regulatory mandates and enforcement actions may have the opposite effect.

Global mergers and acquisitions (M&A) have fallen in the past few years and an uncertain regulatory landscape may be to blame. This year, global M&A activity fell 36% year-on-year in the second quarter. In the U.S., M&A volumes have declined by 30% dropping to $318.4 billion, while Europe and Asia Pacific volumes have dropped by 49% and 24% respectively. While M&A activity in the U.S. is higher in 2023 than it was in 2022, this decline in global M&A volume may partially be due to uncertainties in the regulatory landscape.

The U.S. proposed guidelines, while not yet in effect, reflect the DOJ’s and FTC’s skepticism on the benefits of M&A deals and a push for greater enforcement action against firms with considerable market power. The 2023 proposed guidelines highlight thirteen core principles and are different from prior versions because they are the first merger guidelines to cite case precedent and seek to expand new theories of competitive harm. The issue with this is that old antitrust jurisprudence is messy and dated. Additionally, by expanding theories of competitive harm the guidelines subject merging firms to even greater hurdles and risks of liability. Most notably, the new guidelines lower the threshold for mergers to be presumptively unlawful, increase the scrutiny on private equity sponsors and institutional investors who perform small acquisitions, and place a higher bar for merging firms to demonstrate efficiencies, which is a defense defendants in antitrust cases can use to rebut claims that a merger is anticompetitive.

Similarly, Canada has taken an aggressive approach in strengthening its antitrust regime. On September 21, 2023, the Canadian Government introduced Bill C-56 which included amendments to its Competition Act. These amendments include repealing the efficiency defense for mergers; allowing the Commissioner of Competition to seek injunctions against merging firms whose merger may have anticompetitive effects on any market, even if both parties aren’t competitors in the market; and allowing the Commissioner of Competition to conduct public interest inquiries on specific industries. These amendments allow for greater regulatory oversight over Canadian firms and subject Canadian merging firms to increased transactional costs.

In fact, on August 28th, 2023, Canada’s merger court asked their competition bureau to pay $9.58 million to two merging firms because the Commissioner of Competition’s approach to blocking the deal was “unreasonable.” The competition bureau’s attempts to block the merger failed and caused the merging firms to incur significantly increased transactional costs. This case showcases how aggressive antitrust agencies have been and how costly these enforcement actions can be on firms. This may lead to anticompetitive effects because firms will be more reluctant to merge as their transactional costs increase. This reluctance to merge leads to less efficiency and innovations in a market which, in turn, harms consumer welfare.

The European Union (EU) is also strengthening their antitrust regime. Recently, the EU released a guidance, for Article 22 of the EU merger regulation, that allows the EU to review any mergers referred to by a member state if the deal would significantly threaten to affect competition in the member state and trade between other member states. Member states in the EU have also begun instituting a range of domestic antitrust laws. Germany passed laws that allow regulatory agencies to investigate deals, even if there is no immediate antitrust issue, if the deal poses any risk to consumers’ interest.

Global antitrust regimes have become increasingly aggressive in their antitrust enforcement and have significantly increased risks to merging firms. These regimes have had a chilling effect on mergers, especially in the U.S. The DOJ’s and FTC’s new proposed merger guidelines signal an antitrust regime with an appetite for stronger enforcement, longer investigation periods, and entirely new theories of anticompetitive harm. The future of the antitrust regulatory landscape is at a unique turning point that will allow for the shaping of new antitrust jurisprudence. Unfortunately, there will likely be a lot of unpredictability in the outcome of antitrust enforcement actions in the years after the guidelines are published. It’s likely that global M&A activity will continue to remain low as firms learn how to navigate this new regulatory landscape.

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