What to Expect from Trump’s FTC and DOJ in Terms of Merger Policy
After a long wait and months of speculation, President Trump has finally appointed new antitrust leadership at the Department of Justice’s Antitrust Division and the Federal Trade Commission.
The new antitrust leadership at the Federal Trade Commission (FTC) and Department of Justice (DOJ) is likely to follow a mainstream Republican philosophy of merger enforcement. Both new leaders served in the FTC and DOJ during President George W. Bush’s Administration so merger enforcement under President Trump is likely to be similar to the merger policy under President Bush.
This means we should expect merger challenges only if the economic evidence supports a cause of action, potentially a new approach for challenges based on vertical theories, scepticism for potential competition theories, and a greater emphasis on efficiencies.
THE NEW LEADERSHIP
The new head of the DOJ Antitrust Division started at the beginning of October.
On 27 September 2017, the US Senate finally confirmed Makan Delrahim to head the DOJ Antitrust Division. Mr Delrahim served in the Division from 2003 to 2005, where he primarily handled appellate matters and international coordination. Under Mr Delrahim, the DOJ Antitrust Division is expected to be less aggressive than during the Obama Administration, but it will not signal a return to Reagan-era laissez faire policies.
DOJ has also named several deputies to serve under Mr Delrahim: Andrew Finch, Bernard Nigro, Luke Froeb, Donald Kempf and Roger Alford. These positions are not subject to Senate confirmation.
The FTC is on the road to gaining new leadership. The agency is headed by five Commissioners, of whom not more than three can belong to the same political party. One of the Commissioners acts as Chairman. On 19 October 2017, President Trump nominated Joseph Simons to be the Chairman of the FTC and Rohit Chopra as Democratic Commissioner. Mr Simons is a seasoned antitrust lawyer with experience as director of the FTC’s Bureau of Competition during President George W. Bush’s Administration. Both nominees must now go through the confirmation process at the Senate.
As of early December 2017, there is still one seat to fill, which could rise to three if the two current Commissioners, Acting Chairman Maureen Ohlhausen and Terrell McSweeney, step down. Given how long the Senate confirmation process can take, it may be several months before the new leadership starts at the FTC. Once it is in place, it is unlikely that there will be a dramatic change from merger enforcement under the Obama Administration, but Mr Simons will be more likely to demand solid economic evidence before challenging a transaction.
GREATER FOCUS ON TRADITIONAL HORIZONTAL MERGER ANALYSIS
The FTC and DOJ are likely to focus on traditional horizontal merger theories and are less likely to challenge deals based on potential competition/innovation theories.
In Mr Delrahim’s first speech as head of the Antitrust Division, he stated that blocking a pro-competitive transaction can be just as dangerous as clearing an anti-competitive one: “The goal should be to promote, not stifle competition.”
Luke Froeb, the new Chief Economist at the DOJ Antitrust Division, has publicly stated that he does not find market shares and concentration necessarily to be reliable indicators of competitive effects of a horizontal merger on the market. When he was Director of the FTC Bureau of Economics, he stated: “[M]arket shares and concentration may be poor predictors of merger effects.” Deputy Assistant Attorney General Don Kempf has previously stated that, short of mergers to monopoly, “Most increases in concentration lead to an increase in competition, not a decrease.”
Under the Trump Administration, we have already started to see changes in how DOJ will analyse horizontal transactions. In June 2017, DOJ approved the Dow/ Dupont merger under the leadership of Andrew Finch, who was at the time Acting Assistant Attorney General of the Antitrust Division. Unlike the European Commission, DOJ concluded that the transaction did not raise innovation concerns, and therefore did not require the divestiture of research and development assets for new crop protection chemicals.
MORE CREDIT TO EFFICIENCIES
Under the Bush Administration, the agencies cleared a few controversial transactions based partly on the significant synergies of the transaction. Under the Trump Administration, it is to be expected that the antitrust agencies will similarly give significant credit to cost savings in analysing whether to challenge or clear a transaction.
When Mr Kempf served on the Antitrust Modernization Commission, he expressed the view that the Horizontal Merger Guidelines gave insufficient credit to merger efficiencies, urging the FTC and DOJ to give more credit to efficiency arguments when analysing mergers.
POTENTIAL NEW APPROACH TO VERTICAL TRANSACTIONS
While, initially, the mainstream view was that the antitrust agencies were likely to be sceptical about questioning most vertical transactions, DOJ has already challenged a major high-profile vertical transaction under Mr Delrahim’s leadership.
In addition, on 16 November 2017, Mr Delrahim indicated in a speech that DOJ would “Return to the preferred focus on structural relief to remedy mergers that violate the law,” thereby limiting the use of behavioural remedies in the case of vertical transactions, where such remedies have historically been common. According to Mr Delrahim, “A behavioural remedy supplants competition with regulation; it replaces disaggregated decision making with central planning.” Mr Delrahim also said that, in his view, behavioural remedies might only serve to delay the exercise of anticompetitive market power by merged companies.
This position is in stark contrast with DOJ’s previous policy. The question now is whether the FTC, under Mr Simons’ leadership, will take a similar stance, or whether the FTC will continue to resort to behavioural remedies when concerns arise in vertical transactions.
Under the new leadership, the FTC and DOJ are unlikely to challenge transactions without the data and economic analysis to support it. Internal documents and customer testimony will still remain important factors, but greater weight is likely to be placed on the economic evidence.
In 2001-2002, when Mr Simons was Director of the FTC’s Bureau of Competition, the FTC decided not to bring a challenge against two proposed transactions in the cruise industry: the combination of Royal Caribbean Cruises and P&O Princess Cruises, and the competing hostile tender offer by Carnival Corporation for Princess. The market was concentrated but, on the basis of empirical economic analysis, the FTC found that there was no likelihood of coordinated interaction between the companies on pricing post-merger.
CO-OPERATION AMONG COMPETITION AUTHORITIES
There will continue to be co-ordination between the US antitrust regulators and foreign jurisdictions, but we may see some differences in merger enforcement. As deputy assistant general for antitrust, Mr Delrahim worked on the co-ordination of international antitrust enforcement. Since being nominated for his new role, he has publicly indicated that he will continue focusing on this topic during his term.
In his comments, he has, however, hinted that he may be concerned that enforcers outside the United States, such as the European Commission, could bring actions against American companies out of protectionism. As we saw in the Dow/DuPont matter, there may be some differences in merger enforcement among antitrust regulators in global transactions.