Mergers occur for all sorts of reasons. A company looking to expand into a new sector may choose to combine its facilities and staff with another business already established in that area. Other times, two companies that previously competed with each other become one company with shared resources. Such transactions are known as horizontal mergers.
Every merger comes with some degree of risk for the companies involved. The possibility of government interference is one such risk. Horizontal mergers are at particularly high risk of facing government pushback.
Horizontal mergers may violate antitrust laws
Both federal and state statutes prohibit businesses from intentionally monopolizing a market. It is not legal for a company to control an industry across the country, and it is equally illegal to intentionally dominate one niche in a state or region of the country. The Federal Trade Commission and Department of Justice may oppose any merger that could potentially lead to a monopoly or other harmful effects on a specific industry, even if that impact won’t be immediate.
Companies planning mergers often fail to consider how the combination of the two companies might look to outside authorities. They also have to consider the possible future impact of any such transactions, as there will be a thorough exploration of those possibilities by the agencies. Those planning horizontal mergers need to prepare for the serious risk of antitrust effort that could prevent the merger from occurring.
Enforcement entities review more than a thousand merger proposals each year to protect the market. As a result, recognizing that a merger will possibly – and perhaps even probably – trigger antitrust review may help companies better evaluate a planned transaction and seek legal guidance accordingly.
