Chapter 11. Conglomerate Mergers

• Pages: 371-388

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CHAPTER 11

CONGLOMERATE MERGERS

The U.S. Supreme Court has described a conglomerate merger as

“one in which there are no economic relationships between the acquiring

and the acquired firm.”1 Lower courts and commentators have

categorized a merger as conglomerate more generally, calling any merger

conglomerate if the relationship between the parties is neither horizontal

nor vertical.2

Historically, courts classified nonhorizontal mergers as either

“vertical” or “conglomerate” and developed separate analytical

approaches and criteria to evaluate the likely competitive effects of

particular transactions in each of these categories.3 But, as the U.S.

Supreme Court said in another context, “easy labels do not always supply

ready answers.”4 Some nonhorizontal mergers do not fit neatly into this

dichotomy and the analysis identified for a single category of

1.FTC v. Procter & Gamble Co., 386 U.S. 568, 577 n.2 (1967). The

description is similar to the definition used when the Clayton Act was

amended. Conglomerate mergers were defined as “those in which there

is no discernible relationship in the nature of the business between the

acquiring and acquired firms.” H.R. REP. NO. 1191, 81st Cong., 1st Sess.

11 (1949).

2.See, e.g., Babcock & Wilcox Co. v. United Techs. Corp., 435 F. Supp.

1249, 1284 (N.D. Ohio 1977) (conglomerate merger occurs where firms

“each operate in markets that are not horizontally or vertically related to

those in which the other functions”). Professor Turner defines

conglomerate mergers as “all acquisitions other than (1) acquisition by a

producer of the stock or assets of a firm producing an identical product or

close substitute and selling it in the same geographical market—the

simple horizontal merger; and (2) acquisition of the stock or assets of a

firm that buys the product sold by the acquirer or sells a product bought

by the acquirer—the simple vertical merger.” Donald F. Turner,

Conglomerate Mergers and Section 7 of the Clayton Act, 78 HARV. L.

REV. 1313, 1315 (1965).

3.See, e.g., Brown Shoe Co. v. United States, 370 U.S. 294, 317 (1962); see

also 5 PHILLIP E. AREEDA & DONALD F. TURNER, ANTITRUST LAW

¶¶ 1100-1164 (2003); LAWRENCE ANTHONY SULLIVAN, HANDBOOK OF

THE LAW OF ANTITRUST 653-69 (1977).

4.Broadcast Music, Inc. v. CBS, 441 U.S. 1, 8 (1979); see also NCAA v.

Board of Regents, 468 U.S. 85, 109 n.39 (1984).

372 MERGERS AND ACQUISITIONS

nonhorizontal mergers does not always provide the full analysis of a

transaction. For instance, in some cases, the analysis of a single merger

may require the application of vertical merger analysis in some markets,

conglomerate analysis in other markets, and horizontal analysis in still

others.5 In other cases, such as mergers between producers of imperfect

substitutes, the transaction may not fit easily into any of the horizontal,

vertical, or conglomerate classifications.

In its 1982 Merger Guidelines, the Antitrust Division of the U.S.

Department of Justice (DOJ or the Division) departed from this

historical classification of nonhorizontal mergers.6 The 1982 Merger

Guidelines state that the characterization of nonhorizontal mergers as

either vertical or conglomerate “adds nothing to the analysis.”7 Without

regard to the traditional classifications, the 1982 Merger Guidelines and

their revision in 19848 focus on the ability of the nonhorizontal merger to

reduce competition by permitting the creation or exercise of market

power. The Merger Guidelines still organize the theories that the

Division is likely to use to challenge nonhorizontal mergers according to

5.See, e.g., United States v. Aluminum Co. of Am., 377 U.S. 271 (1964)

(acquisition of aluminum and copper wire manufacturer by integrated

producer of aluminum and aluminum products was vertical in the supply

of aluminum for aluminum wire and in the supply of an intermediate

aluminum wire product, conglomerate in the acquisition of copper

products because aluminum and copper wire were found to be separate

lines of commerce, and horizontal in the manufacture and sale of

aluminum wire and cable).

6.U.S. DEP’T OF JUSTICE, MERGER GUIDELINES (1982) [hereinafter 1982

MERGER GUIDELINES], reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,102.

7.Id. § IV.A.1, n.39.

8.U.S. DEP’T OF JUSTICE, MERGER GUIDELINES (1984) § 4.1 n.25

[hereinafter 1984 MERGER GUIDELINES], reprinted in 4 Trade Reg. Rep.

(CCH) ¶ 13,103. The 1992 Horizontal Merger Guidelines do not

specifically address nonhorizontal mergers. U.S. DEP’T OF JUSTICE &

FEDERAL TRADE COMM’N, HORIZONTAL MERGER GUIDELINES (1992)

[hereinafter 1992 MERGER GUIDELINES], reprinted in 4 Trade Reg. Rep.

¶ 13,104 and in Appendix I. A statement accompanying the release of the

1992 Merger Guidelines said that the policy regarding nonhorizontal

mergers was unchanged and that guidance is provided by the 1984

Merger Guidelines read in the context of the changes regarding the

treatment of horizontal mergers provided by the 1992 Merger Guidelines.

U.S. DEP ’T OF JUSTICE & FEDERAL TRADE COMM’N, STATEMENT

ACCOMPANYING RELEASE OF REVISED MERGER GUIDELINES 3 (Apr. 2,

1992), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,104.