Recent Revisions To Federal Merger Guidelines Highlight Labor Impacts – M&A/Private Equity

On December 18, 2023, the Federal Trade Commission and
Department of Justice, Antitrust Division (together, “the
Agencies”) jointly released a significant revision and
expansion to the federal Merger Guidelines (the
“Guidelines“), the document that lays out the
framework for how the Agencies analyze mergers for potential
antitrust concerns. The revisions include a number of changes that
we have discussed before, including a presumption against
mergers that create a market share above 30%. But the change that
matters most for readers of this blog is a new guideline that
— for the very first time — incorporates the analysis
of labor impacts into federal antitrust merger
reviews.

The revised Merger Guidelines explain that, just as
businesses compete in the marketplace for the sale of goods or
services, so too do businesses compete in the marketplace for the
purchase of labor: “The Agencies protect this competition in
all its forms.” Therefore, the revised Guidelines
explain, “The same—or analogous—tools used to
assess the effects of a merger of sellers can be used to analyze
the effects of a merger of buyers, including employers as buyers of
labor.”

When evaluating a merger’s potential impacts on labor, the
Agencies will consider whether the merger may result in decreased
wages, diminished benefits, worse working conditions, or, in the
Guideline‘s nebulous description, “other
degradations of workplace quality.” Notably, the Agencies will
consider not only whether a merger will result in
absolute decreases in wages or benefits
(i.e., if post-merger compensation will be lower than
pre-merger compensation) but will also consider the future
trajectory of wages and benefits. For example, if
the Agencies determine that post-merger wages will increase by 10%
but that, in a “but-for” world without the merger, wages
would naturally increase by 15%, then the Agencies may conclude
that a reduction in the future growth in wages
(the difference between 15% and 10%) is enough of a competitive
harm to justify challenging the merger.

The revised Merger Guidelines represent a fundamental
change in philosophy from past Agency guidance. Until recently, labor impacts typically only
factored into merger analysis to the extent that there were
efficiencies from a merger, such as when the
combined firm could eliminate duplicative administrative roles and
thereby pass the savings along to consumers. Now, however, the
revised Guidelines require businesses to be guarded about
predicting administrative savings from proposed mergers —
even if those savings might otherwise make the combined company a
more effective competitor in the marketplace. As the revised
Merger Guidelines put it, “a merger’s harm to
competition among buyers is not saved by benefits to competition
among sellers.”

For a company that may be considering a potential merger, it
will be important to work with experienced antitrust counsel.
Counsel can help explain the ramifications of the revised
Merger Guidelines, including understanding the lines
between a potentially pro-competitive “efficiency” and a
potentially anti-competitive degradation in compensation or working
conditions.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.