Mergers and Acquisitions – Proposed Guidelines

On January 10 the US Federal Trade Commission (FTC) and the Department of Justice’s Antitrust Division (DOJ) issued Draft Vertical Guidelines concerning vertical mergers, currently open for public commentary through February 11, 2020. These guidelines detail how the FTC and DOJ analyze the potential anti-competitive or pro-competitive effects a vertical merger may create within a marketplace. Significantly, the draft guidelines depart from the DOJ’s 1984 guidelines concerning vertical mergers in favor of being more in line with the Canadian Competition Bureau’s Merger Enforcement Guidelines, signifying a likely shift in how cross-border Canada/US mergers are assessed by governing bodies.

A vertical merger, or vertical integration, is a merger between certain entities, firms, and assets within various different stages of a supply chain for the purposes of streamlining a business’ overall processes. Examples of such transactions include an acquisition of a retail company by the manufacturer, or vice versa, and have the potential to hinder or box out altogether any competition within a certain retail sphere when all aspects of a supply chain become wholly owned and controlled by one entity. While vertical mergers have the potential to create a healthier marketplace through the creation of streamlined processes and overall efficiency, regulatory schemes exist to mitigate risks of monopolistic expansion which has the potential to harm consumers. While horizontal mergers, in which two business competing within the same point in the supply chain, are a separate concern as well, vertical mergers tend to attract more scrutiny due to the all-encompassing nature of supply chain integration.

Overall, the Draft Vertical Guidelines demonstrate certain similarities with the 1984 guidelines, the Canadian Competition Bureau’s guidelines, and guidelines directed towards horizontal mergers, in addition to certain drastic departures from those regulatory frameworks, the specific impacts of which have yet to fully manifest. For these reasons, companies involved in supply chain focused activities, especially those involved in cross-border streams, should actively reassess whether or not certain transaction specifics are more likely to fall under the FTC and DOJ’s evolving methods of market analysis. The potential costs associated with running afoul of these guidelines, which in all likelihood will reflect the recent draft guidelines, can be detrimental to the survival of a business.

Bodker Ramsey Andrews Winograd & Wildstein specializes in complex business transactions and has decades of experience guiding expanding businesses through large-scale mergers and acquisitions.