Conglomerate Mergers

• Pages: 405-422

CHAPTER XII

CONGLOMERATE MERGERS

The Supreme Court has defined a conglomerate merger as “one in

which there are no economic relationships between the acquiring and the

acquired firm.”1 In other words, the parties are neither actual or potential

competitors nor stand in a vertical (e.g., supplier/customer) relationship.2

Historically, U.S. courts classified transactions as horizontal,

vertical, or conglomerate and developed separate analytical appr oaches

to each.3 Product extension and market extension arguably fell into yet

another category.4

In its 1982 and 1984 Merger Guidelines,5 the Antitrust Division of

the U.S. Department of Justice (DOJ or the Division) disavowed the

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

description is similar to the definiti on used when the Clayton Ac t was

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

no discernible rela tionship in the nat ure of the busines s 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); Donald F. Turner, Conglomerate Mergers

and Section 7 of the Clayton Act, 78 HARV. L. REV. 1313, 1315 (1965).

Of course, not all mergers fit neatly into vertical, horizontal, or

conglomerate characterization. The same merger may impact more than

one market, requiring application of horizontal, vertical, and/or

conglomerate analysis to the same transaction.

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

also 5 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW

¶¶ 1100-1164 (3d ed. 2009); LAWRENCE A. SULLIVAN, HANDBOOK OF

THE LAW OF ANTITRUST 653-69 (1977).

4. Procter & Gamble Co., 386 U.S. at 577 (product extension); United

States v. Marine Bancorp., 418 U.S. 602, 624 (1974) (market extension);

United States v. Connecticut Nat’l Bank, 418 U.S. 656, 659 (1974)

(same).

5. Compare U.S. DEP’T OF JUSTICE , MERGER GUIDELINES (1968)

[hereinafter 1968 MERGER GUIDE LINES] § III (addressing conglomerate

mergers), available at http://www.justice.gov/atr/hmerger/11247.pdf with

U.S. DEP’T OF JUSTIC E, Merger Guidelines (1982) [hereinafter 1982

405

406 Mergers and Acquisitions

value of characterizing mergers as vertical or conglomerate and did not

identify any theory under which to challenge conglomerate mergers

except the elimination of potential competition (discussed in Chapter X).

There are no other federal merger enforcement guidelines issued by the

DOJ or the Federal Trade Commission (FTC or the Commission)

regarding conglomerate mergers, and neither agency has challenged a

merger under a conglomerate theory since the 1970s. Indeed, one court

has suggested that theories of anticompetitive effects from conglomerate

mergers are not persuasive.6

Nevertheless, several competition-related concerns have been raised

at times about conglomerate mergers and, in 2001, the European

Commission (EC) invoked conglomerate theory (also referred to as

“portfolio effects”) to challenge the merger of General Electric and

Honeywell.7 The concerns of the European Commission included the

entrenchment of dominant firms and the potential risk of anticompetitive

tying or bundling arrangements.8

A. Evaluative Criteria for Judging Conglomerate Mergers

The legislative history of the 1950 amendments to Section 7 of the

Clayton Act (Section 7)9 makes clear that Section 7 was intended to

apply to all merge rs—horizontal, vertical, and conglomerate.10 As the

MERGER GUIDELINES] (characterizing nonhorizontal mergers as either

vertical or conglomerate “adds no thing to the analys is”), available at

http://www.justice.gov/atr/hmerger/11248.ht m and U.S. DEP’T OF

JUSTICE , MERGER GUIDELINES (1984) [hereinafter 1984 MERGER

GUIDELINES] § 4.1 n.25 (same), available at http://www.justice.gov/atr/

hmerger/11249.htm.

6. See T. N. Dickinson Co. v. LL Corp., 1985 WL 14175, at *4 (D. Conn.

1985) (“[n]o allegations suggest that [successor company] was either a

competitor, a supplier or customer, or potential competitor” on face of

complaint so that, according to complaint, acquisition had no effect on

structure of competition).

7. Commission Decision, Case COMP/M.2220—General Electric/

Honeywell, 2004 O.J. (L 48) 1, 1[1] 342-48.

8. Id. ¶¶ 412, 442.

9. 15 U.S.C. §18.

10. H.R. REP. No. 1191, 81st Cong., 1st Sess. 11 (1949); see Brown Shoe Co.

v. United States, 370 U.S. 294, 317 (1962); FTC v. Procter & Gamble

Co., 386 U.S. 568, 577 (1967).