A Closer Look: What the FTC/DOJ Review of Merger Guidelines Means for Transaction Communications

January 25, 2022
By Dan Scorpio and Sarah Knakmuhs

When regulators speak, the wise pay attention. When two regulators not always known for close coordination speak jointly and suggest a new paradigm of merger antitrust review may be on the table, those involved in planning M&A transactions would be wise to ask, “What does this all mean?”

That is what happened on January 18th when the Federal Trade Commission (FTC) and the Department of Justice’s (DOJ) Antitrust Division opened a public comment period and announced a joint review of the agencies’ merger review guidelines. These guidelines summarize the agencies’ approach to antitrust enforcement and the evaluation process in deciding to approve or challenge mergers in court.

These regulators are signaling an intent to give closer and heightened scrutiny to vertical and horizontal mergers and suggested a “multi-dimensional” view of markets that would represent a significant change from historical antitrust enforcement. The DOJ/FTC announcement also mentioned the agencies may consider the size of acquiring companies, acquisitions by private equity and the strategies of digital-first businesses, suggesting a possible evaluation of competition and market concentration that is more fluid or situational than in the past.

So, what does this all mean? Right now, this is an early step in an evaluation process. However, if merger guidelines are updated, it is reasonable to expect that more mergers could be challenged in court, face tougher regulatory scrutiny and/or become subject to greater public skepticism. Deals will still get done, but for some, the path to completion may be more arduous.

Regulators have injected some uncertainty into the M&A environment. Even the question of a potential antitrust challenge can complicate a transaction’s chance of success to close. Companies and advisers should begin evolving their communications strategies and tactics today to be better positioned to reach the finish line when enforcement of updated guidelines takes effect.

The message matters. The traditional deal communications playbook – focusing on financial concepts like synergies, scale and pricing power, and on building best-in-breed capabilities – is no longer enough. Companies embarking on M&A need to credibly communicate that the proposed combination will improve competition and benefit consumers on various levels. This goes beyond a commitment to lower prices and should address labor issues and emerging hot buttons like data privacy. Anticipate the regulatory shift away from historical market definitions by presenting a more holistic view of the combined company’s position in the marketplace.

Keep a close eye on Congress. With an election year looming, members will be looking to press an advantage with their constituents and against their opponents. Is proposed legislation bipartisan with a chance of becoming law? Or primarily a messaging vehicle to energize supporters? It’s important to understand that even attention along partisan lines can cause problems for M&A. We analyzed more than 300 letters or requests for information over 10 years from members of Congress to companies undergoing M&A. For companies that received this level of attention, deals took twice as long to close and more than one-third failed to close at all.

Plan for a protracted antitrust review. Map all transaction milestones and prepare a detailed, cross-stakeholder approach to ensure that, at every turn, you are effectively communicating the deal’s benefits and momentum toward close. Employees and customer groups are increasingly effective at raising concerns about transactions in the public domain, so these groups must be treated with care. Plan for various scenarios and begin laying the groundwork for a D.C.-specific effort to manage a potential court process. Line up supportive third parties, understand how state actions fit within the timeline and use digital tools to support and reinforce your message. Also important: keep disciplined about external messaging even beyond transaction-specific communications. Expect heavy scrutiny across all channels and on all voices from the company.

Remember your shareholders. Investors often mistrust transactions with an uncertain or winding path to closing. Consider working with an experienced proxy solicitor to understand the nuances of your shareholder base and coordinate a proactive engagement campaign to secure the vote. If investors are sharing feedback, don’t ignore it. Address concerns quickly and strategically. Criticism of M&A transactions remain a major focus of activist shareholder campaigns, so always know your deadline for shareholders to submit proposals and director nominations.

Data analysis can give an advantage. Key to properly conducting a lengthy campaign for regulatory approval is knowing where to aim. Set realistic KPIs for media coverage and public sentiment and track this data in real time. A regular analysis of tone, volume and message penetration in the public domain can help you understand where opposition is coming from, whether from regulators or other third parties, and if it is resonating. Know your opposition and you can adjust your strategy accordingly.

Without question, greater regulatory scrutiny and uncertainty has the potential to chill M&A prospects. Companies that think strategically about communications planning, messaging and stakeholder engagement, can help prevent their deals from freezing.