The Federal Trade Commission (FTC) on Wednesday voted to rescind year-old guidelines to help companies comply with laws governing mergers and acquisitions of other businesses within their supply chain, a decision that two dissenting commissioners said clouds the legal landscape for businesses to comply with the laws governing vertical mergers.
The FTC voted three to two to rescind the June 2020 Vertical Merger Guidelines that were also adopted by the Department of Justice’s (DoJ) Antitrust Division, which for now is maintaining the guidelines while continuing to review them.
The guidelines describe a “framework that the DoJ and FTC have developed over decades of experience to analyze both the anti-competitive and the pro-competitive affects of these mergers,” Noah Phillips, a Republican commissioner, said during a discussion of the proposal to rescind the Vertical Merger Guidelines. He added that “The guidelines serve as a useful guidepost for businesses that seek to ensure their conduct is lawful. Withdrawing them, leaves the business community without clarity as to how we will carry out vertical merger enforcement, which we are doing today.”
Phillips highlighted that the FTC’s vote on Wednesday came with little notice and “zero public input,” and also pointed out that, for now, the FTC doesn’t have new guidelines in place.
The FTC’s vote comes as it is reviewing the proposed acquisition by Lockheed Martin [LMT] of Aerojet Rocketdyne [AJRD], the last independent U.S. supplier of solid rocket motors. Northrop Grumman [NOC] in 2018 acquired Orbital ATK, which also supplies solid rocket motors.
It’s unclear what the FTC’s rescission of the Vertical Merger Guidelines could mean for Lockheed Martin’s deal, which has been questioned by defense contractor Raytheon Technologies [RTX], a major consumer of rocket motors for its missile products, and Sen. Elizabeth Warren (D-Mass.)
Lina Khan, the FTC chair, voted to rescind the guidelines. In August, Khan wrote Warren a letter agreeing with the senator’s concerns that behavioral remedies used to ensure that companies acquiring major suppliers maintain a competitive environment for the suppliers’ products often don’t work.
“Indeed, both research and experience suggest that behavioral remedies pose significant administrability problems that have often failed to prevent the merged entity from engaging in anticompetitive tactics enabled by the transaction,” Khan wrote in an Aug. 6 letter.
Khan’s response to Warren raised doubts that the FTC would approve the deal for Aerojet Rocketdyne.
Christine Wilson, the other Republican commissioner, said the FTC’s vote also criticized the lack of any new guidelines for vertical mergers, highlighting that the ongoing COVID-19 pandemic has exposed supply chain vulnerabilities in the broader markets. She also pointed out that the guidelines highlight various ways that vertical mergers might “harm competition,” adding that 40 cases in the past 15 years “demonstrate there is no free pass for vertical mergers.”
Khan said that the FTC’s decisions regarding proposed vertical mergers will be based on existing laws. Rebecca Slaughter, another commissioner, said the “catalogue of harms in the 2020 guideline continues to be valid though non-exhaustive and that this understanding of harms continues to be critical to our analysis of vertical mergers.”