It has been nearly two months since the Department of Justice and Federal Trade Commission published their new merger guidelines and practitioners have been poring over the details ever since.
In essence, antitrust reviews are now tied to a broader definition of competitive harm, with the merger guidelines updated to “…reflect modern market realities, advances in economics and law, and the lived experiences of a diverse array of market participants.” As a consequence of these new guidelines, the DOJ and FTC are now expected to pursue theories of competitive harm that historically have been outside the scope of antitrust reviews. This will likely complicate how companies communicate about mergers – particularly when it comes to the impact on workers.
In the past, the antitrust agencies applied the “consumer welfare standard” when assessing if a transaction was anticompetitive; if consumers were not harmed by the corporate combination, then the merger was permitted, and conditions were not imposed on the transaction. The purpose of this article is not to argue whether the consumer welfare standard is the right approach to antitrust enforcement, but to highlight the range of new communication issues and heightened risks the broadened scope of enforcement creates for the merging parties.
The analytical framework provided by the agencies takes the form of 11 guidelines “to assist the Agencies in assessing whether a merger presents sufficient risk to warrant an enforcement action.” Some of these guidelines are untested and present a stark departure from precedent.
Every transaction has its own set of facts although there is always some level of subjectivity. With the departure from the consumer welfare standard, disagreements among antitrust enforcers and the merging parties are likely to grow. There are already conflicting interpretations about one of the guidelines that will likely be subject to future battles.
The focus is on “Guideline 10: When a Merger Involves Competing Buyers, the Agencies Examine Whether It May Substantially Lessen Competition for Workers, Creators, Suppliers, or Other Providers.” The guideline states antitrust enforcers are now assessing the competitive harm that may occur if “workers face a risk that the merger may substantially lessen competition for their labor."
Increased purchasing power and labor efficiencies have long been part of the cost synergies touted by the merging parties and cheered by investors. With the inclusion of labor in the competitive analysis rubric, that narrative has been upended. From a communications perspective, developing a narrative that highlights the benefits of cost synergies while not running afoul of the reviewing agency will require a nuanced communications plan and a deeper level of employee engagement.
The new guidelines don’t indicate what techniques antitrust enforcers will employ to investigate competitive effects on labor markets. Will the agencies conduct employee surveys and interviews to better understand the power dynamics in the labor market of the merger? If so, how will companies prepare their employees, protect themselves and help guarantee the success of the transaction? Will labor activists, disgruntled employees or anyone else with an agenda have new sway with government officials who hold the power to approve or oppose a transaction?
While the answers are still unknown, what’s clear is that antitrust enforcement has changed. As a result, companies need to rethink their communications plans for transactions, adjusting for increased scrutiny and novel theories of competitive harm. In preparation for this new antitrust approach companies should:
- Conduct a vulnerability assessment with the 2023 guidelines in mind to determine how a contemplated transaction would be positioned.
- Craft a narrative that conveys the merits of the transaction while mitigating antitrust risk. In this new era, that may mean paying far more attention to the impact on workers.
- Create a comprehensive communications plan tailored to each stakeholder group to address their concerns while keeping overall deal messaging consistent.
Developing a comprehensive and defensible merger communications narrative must start very early in the process and be supported by proof points. The DOJ and FTC are attuned to talking points generated solely for their benefit. Incongruous narratives will crumble under scrutiny, therefore deal rationale must be thoughtful, detailed and thoroughly vetted.
Ira Gorsky, Managing Director, (ira.gorsky@edelmansmithfield.com)