Compliance During Mergers and Acquisitions

• Pages: 203-211

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CHAPTER 18

COMPLIANCE DURING MERGERS AND ACQUISITIONS

A. Merger Clearance and Premerger Notification

1. The Clayton Act, Section 7

In considering a merger or acquisition, it is vital to be aware of the prohibition contained in

the Section 7 of the Clayton Act.1 Section 7 forbids any acquisition where “the effect of such

acquisition may be substantially to lessen competition, or to tend to create a monopoly.”

Although the language of the act is directed at the acquirer in a proposed transaction, the target

of any transaction should also be aware of the statute’s requirements and impact, as both parties

are likely to be subjected to the available remedies should a transaction run afoul of the act.

The Federal Trade Commission (FTC) and the Antitrust Division of the Department of

Justice (DOJ) are tasked with monitoring transactions to ensure that a substantial lessening of

competition does not result.2 If the FTC and DOJ choose to evaluate a transaction, the principal

analytical techniques and types of evidence on which they rely to analyze the effects of a

proposed business combination are set forth in the proposed revisions to the jointly issued

Horizontal Merger Guidelines.3 Companies contemplating a business combination would be

well-advised to evaluate their proposed transactions in the same way, because an early awareness

of antitrust risk can substantially alter the cost-benefit analysis of the transaction in question.

Although the FTC and DOJ can and do evaluate the effects on competition of mergers by

companies in vertical relationships—such as manufacturers and suppliers—this chapter focuses

on the more common scenario, which generally involves analysis of a merger or other venture

between horizontal competitors. Horizontal agreements are more likely to garner antitrust

scrutiny, given that the parties tend to compete directly for the same type of business.

To determine whether a transaction between competitors is likely substantially to lessen

competition, both companies should consider with their counsel whether the merger raises

concerns about potential adverse competitive effects. In making this determination, the

companies should consider historical events such as entry, expansion, and/or exit, market shares

and concentration, whether there is substantial head-to-head competition between the merging

parties, and whether the merger will eliminate a firm that has traditionally played a disruptive

role in the market (e.g., a price cutter). The merging parties also should assess (a) whether they

1. 15 U.S.C. § 18.

2. 15 U.S.C. §§ 1 and 2; 15 U.S.C. § 45.

3. In April 2010, the FTC and DOJ released for public comment a proposed update to the Horizontal

Merger Guidelines. The proposed Guidelines more accurately reflect the way the FTC and DOJ

conduct merger reviews than the existing Guidelines, which were issued in 1992. See Horizontal

Merger Guidelines For Public Comment (Apr. 20, 2010), available at

http://www.ftc.gov/os/2010/04/ 100420hmg.pdf. As of this writing, the proposed Guidelines have

not been finalized by the FTC and DOJ.