In 2024, we expect that the global antitrust environment will continue to be challenging, with regulators willing to intervene in M&A activity and remaining on high alert for commercial behaviors they consider harmful to competition.
In a nutshell, dealmakers should factor in the potential for even more far-reaching merger control investigations of their global deals, with updated filing requirements and merger processes, and continued aggressive and potentially divergent global enforcement, including regarding remedies. Deals may also face increasing regulatory hurdles in the form of foreign direct investment control and/or EU foreign subsidies filings, and a pro-active global strategy will be vital to achieve successful outcomes.
And outside of deal-making? Businesses should be mindful of increased antitrust risks, with agencies on high alert to tackle alleged anti-competitive conduct in challenging economic times, including labor market restrictions, unlawful information exchange, and improper coordination. While achieving de-carbonization targets continues to be a priority for many businesses, those looking to collaborate should assess their initiatives in line with increasingly divergent regulatory frameworks.
This post sets out our analysis of the important trends and related takeaways that companies should factor into their planning for the year ahead.
1. Regulators are likely to continue challenging transactions in novel and expansive ways
We expect regulators around the world to continue the trend of finding novel ways to challenge transactions.
In the US, after an initial release over the summer, the agencies issued final Merger Guidelines at the end of 2023 that reflect their continued aggressive approach to merger enforcement. These Guidelines provide a rubric for the types of competitive harm that the agencies will investigate. The guidelines lower the threshold for the agencies to presume that a merger raises antitrust concerns and indicate a new interest in mergers involving potential competition between competitors, “platform” products often used in newer tech markets, and labor markets effects. But, as was evidenced in the FTC’s failed legal challenges to Microsoft’s acquisition of Activision Blizzard, Inc. and Meta’s acquisition of Within Unlimited, Inc., the agencies may face headwinds when taking these novel theories to court.
The European Commission has also shown its willingness to challenge mergers using non-traditional theories of harm. It prohibited Booking’s proposed acquisition of eTraveli in September 2023 based on a theory that the merger would strengthen Booking’s alleged dominant position in the hotel online travel agency market, thereby allowing Booking to expand an “ecosystem” of services.
The CMA is also exploring similar concerns. It looked closely at several cases in 2023 including Booking/eTraveli (which it ultimately decided to clear unconditionally in contrast to the EC prohibition) and Amazon/iRobot (which it cleared unconditionally vs. the EC’s ongoing phase 2 review). These clearances do not mean that the CMA won’t continue to pursue these theories of harm or others – perhaps aggressively, including in vertical mergers with data access issues. But it is still possible to get the CMA (and the EC) comfortable with large global transactions as shown in cases such as Microsoft/Activision and Broadcom/VMware.
In addition, US and UK authorities will likely continue to scrutinize perceived “roll up” transactions, particularly in consumer-facing industries. 2023 saw the first US “roll up” strategy enforcement action against Welsh Carson and its portfolio company, USAP. Meanwhile, the CMA investigated a number of “roll up” acquisitions by private equity in the dentistry and veterinary sectors, applying its jurisdictional test expansively and requiring significant structural divestments. The CMA’s proposed reforms to its de minimis framework make clear that (even small) transactions that form part of a potentially large number of similar mergers will continue to attract close scrutiny.
2. Significant merger litigation is likely to continue apace
After a series of high profile court defeats in 2022 and 2023 – including failed attempts to block UnitedHealth Group’s acquisition of Change, Microsoft’s acquisition of Activision, and Meta’s acquisition of Within in federal district court — the US antitrust agencies finished 2023 with a victory in the years-long litigation to enjoin Illumina’s acquisition of Grail. 2024 has already seen two enforcement actions, with victories for both the FTC and DOJ. These challenges will also be set against the backdrop of a potential landmark trial in the FTC’s litigation against Meta related to its history of allegedly acquiring nascent competitors. Whether these court challenges will also bring an uptick in merger enforcement in all sectors remains to be seen, but the outward aggressive posture of the US antitrust agencies will likely continue unabated.
In the EU, merger litigation will be dominated by challenges to the EC’s increasingly bullish stance on theories of harm and jurisdiction. The EC’s use of “ecosystem” theories of harm will be on trial in Booking’s appeal of the eTraveli prohibition. And the European Court of Justice Advocate General’s opinion is due in March in Illumina’s challenge of the EC’s Article 22 procedure (which, according to the EC, allows it to review transactions like Illumina’s acquisition of Grail, that are not caught by the notification thresholds if Member States request it).
3. More so than ever, dealmakers need a global strategy, including for remedies
In recent years, global authorities have continued to pursue aggressive enforcement strategies, and required tougher remedies to solve concerns. They have also reached increasingly divergent conclusions regarding the same merger investigation (look out for our upcoming dedicated post for more detail on global deal trends). There are few signs of reaching alignment in 2024 and so we can expect this divergence to continue, with important implications for deal strategy.
The leaders at the US agencies have signaled their preference to outright block problematic transactions, rather than negotiate remedies. This more aggressive posture was put to the test in the FTC’s challenge to Amgen’s acquisition of Horizon, where the FTC initially refused to accept a settlement that it later accepted on the eve of trial. The FTC’s challenge, and the settlement that followed, may suggest a limited willingness to accept remedies in certain cases, while an outward aggressive posture is expected to remain. Going into 2024, the US agencies’ approach to settlements will remain an open question and one that will likely determine the course of the antitrust enforcement landscape for the year.
Meanwhile in the UK, there is still no evidence that the CMA’s stance on behavioral remedies is softening, despite plans to reform its Phase 2 process (see below). So in relevant cases, businesses will need to focus on a strategy that accommodates credible structural remedies.
4. Expect updated merger review procedures and new regulatory hurdles – with pros and cons for dealmakers
In June 2023, the US agencies announced proposals to expand the Hart-Scott-Rodino filing disclosure requirements for deals, bringing the US agencies’ processes closer in some ways to those of their counterparts in the EU and UK. Under the proposed rules, merging parties would have to submit additional transaction-related documents and written explanations of the parties and their business activities, among a number of other changes. Likely to take effect in early to mid-2024, once adopted these changes will require careful planning well in advance of submitting HSR filings. These additional requirements will likely also add complications to the merger review process itself, including more protracted review in the initial 30-day waiting period and more questions from antitrust regulators.
The CMA has announced proposed reforms to its Phase 2 in-depth investigation processes with a promise of increased engagement and transparency for merging parties and more opportunities to discuss remedies. The final guidance is expected to come into force in Q1 2024. The EC has also refreshed its merger simplification package to introduce new streamlined procedures for certain categories of cases, while expanding information requirements and including nuances that will require careful attention. It remains to be seen if the new procedures really do cut red tape as promised.
Deals could also face additional regulatory hurdles beyond merger control, with the global proliferation of foreign direct investment control regimes set to continue (with scope for reviews of outbound investments) and a new mandatory M&A filing requirement under the EU Foreign Subsidies Regulation – see our scorecard for 2023 here.
5. Divergence is likely in the treatment of sustainability initiatives
2023 saw the publication of the CMA’s standalone Sustainability Guidelines and a new dedicated chapter in the EC revised Horizontal Guidelines. Both seek to provide more clarity and comfort to businesses seeking to collaborate on genuine sustainability initiatives, and establish an “open door” policy to engage directly with regulators on proposals. The CMA issued its first informal guidance on 14 December, blessing Fairtrade’s Shared Impact initiative to enhance sustainability and resilience in food supply chains.
The day before – in stark contrast – the US House Judiciary Committee issued subpoenas to multiple PE firms due to allegedly “inadequate” responses to its investigation into potential collusion to “decarbonize” their funds. This follows various state attorneys general investigating PE firms to see whether they illegally coordinated the implementation of ESG policies.
The US antitrust agencies have also taken the opposite stance to their EU/UK counterparts: that the aim of sustainability will not affect the antitrust assessment. In fact, even where businesses take action to adhere to state-level standards, they may still be subject to investigation for improper coordination under federal antitrust law. We saw this with the agreement between four automakers and the state of California regarding fuel economy and emission standards. Although the DOJ’s investigation here was ultimately dropped, the case serves as an important reminder of how legitimate, good-faith ESG initiatives can nevertheless raise regulator scrutiny.
It is unlikely that US state and federal rules, as well as rules in different jurisdictions, will align anytime soon. Businesses should therefore closely consult with counsel in the respective jurisdictions on a case-by-case basis.
6. More clarity on information exchange highlights the risks
Sharing information with competitors is often a prerequisite for many commercial arrangements including R&D collaborations, joint bidding arrangements, and M&A negotiations. While it can often be procompetitive, exchanges of commercially sensitive information can present antitrust risk, potentially exposing businesses and individuals to serious sanctions including fines, follow-on private damages claims, director disqualification and even allegations of criminal liability.
With the repeal of the DOJ and FTC’s information sharing guidance last year, removing safe harbors in the healthcare industry and indicating increased scrutiny in other sectors involving digital tools such as pricing algorithms, companies should expect to see more standalone cases addressing allegedly improper information exchange and coordination, including in the M&A context.
Meanwhile, the EU and UK antitrust authorities have been busy updating their guidance on when information exchanges will be considered unlawful, reflecting recent case law and practice. Businesses (especially those using AI and digital tools) will welcome more clarity, but should also expect greater scrutiny in 2024 and more than ever assess risk early and with a broad perspective, and consider ways to minimise it. Top of the list should be refreshing compliance policies and training for sales, M&A, and other relevant teams on avoiding breaches in the first place. Businesses will also be well served by revisiting their internal guidelines for employee participation in trade associations and industry groups, and the use of benchmarking and industry survey service providers.