• DOJ Sees First Merger Win After String of Losses

Penguin Random House’s planned acquisition of rival Simon & Schuster was blocked by Judge Florence Pan of the US District Court for the District of Columbia on November 21. Judge Pan’s decision is significant because she accepted the Department of Justice’s (DOJ) theory that the merger would lead to lower compensation for best-selling authors. This case is distinguishable from most previous merger challenges because it focused on the transaction’s increasing concentration in the purchase of goods or services rather than their sale.

Penguin and Simon & Schuster are two of the “Big Five” publishing houses. Judge Pan concluded that the post-merger entity would control 49% of the market for the publishing rights to so-called “anticipated top-selling books,” or those that come with an author advance of $250,000 or more. Judge Pan accepted the government’s narrow market definition and price discrimination theory that focused on author/labor compensation as a metric of harm. The parties have since abandoned the transaction. This decision may embolden the DOJ and Federal Trade Commission (FTC) to challenge more transactions based on the impact on labor and salaries rather than the impact on consumer prices.

The Justice Department’s win in Penguin follows a string of losses last quarter, some of which have pending appeals:

  • Illumina, Inc.’s, vertical merger with Grail Inc. was finalized in August 2021 despite pending challenges from the FTC and European Commission (EC). The FTC administrative law judge rejected staff’s challenge to the consummated transaction, and FTC staff appealed the ruling to the FTC commissioners on September 2, 2022. On December 5, the EC ordered the companies to unwind the deal and accused the companies of gun-jumping and violating interim measures imposed in September 2021 that required the companies to keep operations separate for the duration of the EC’s merger review.
  • The Justice Department appealed its loss in U.S. Sugar Corporation / Imperial Sugar Co. to the US Court of Appeals for the Third Circuit in September 2022 and requested an emergency stay. The emergency stay was denied and, on November 29, U.S. Sugar informed the Third Circuit that it closed its acquisition of Imperial.
  • Two months after the Justice Department loss in UnitedHealth / Change Healthcare, the DOJ appealed the decision to the US Court of Appeals for the District of Columbia Circuit. The appeal comes more than one month after the parties notified the court that the deal closed on October 3.
  • The DOJ also lost its challenge of Booz Allen Hamilton’s acquisition of EverWatch Corporation in October 2022. The deal closed on October 14, but the DOJ sought another temporary injunction while it decided whether to appeal the decision. The district court rejected the Justice Department’s bid for a temporary injunction, stating that the “ship has sailed” because the deal closed. DOJ voluntarily dismissed the case in December.
  • FTC Brings Suit Against Microsoft/Activision

On December 8, 2022, the FTC brought suit to stop Microsoft’s $68 billion acquisition of Activision, Inc., a vertical deal in the online gaming space involving nascent markets where competition is still evolving. The online gaming arena is transitioning from a console-based marketplace to streaming and cloud-based services for gaming. This enforcement action demonstrates the FTC’s aggressiveness in challenging vertical transactions in technology markets. Microsoft has announced its commitment to behavioral remedies that it says will preserve competition by supplying Activision games, such as the highly popular game “Call of Duty,” to Microsoft’s gaming system and game streaming competitors. However, the FTC, similar to the DOJ’s challenge to Penguin Random House’s horizontal acquisition of Simon & Schuster, is unwilling to accept behavioral remedies. Nevertheless, some courts have rejected FTC and DOJ challenges where the parties promised to comply with behavioral commitments.

  • Updated Merger Guidelines Expected Soon

On January 18, 2022, The FTC and the DOJ launched a joint public inquiry soliciting input on ways to modernize the federal merger guidelines. The federal enforcement agencies voiced concerns over increased market concentration across many industries. The issues of interest involve reevaluating the agencies’ positions on the types of transactions that should be viewed as presumptively anticompetitive, market definition, so-called “nascent” competition, buyer-side monopsony power (with an acute focus on labor markets) and digital (i.e., “tech”) markets. The new merger guidelines, expected to be released in Q1 of 2023, will likely be a major overhaul of the prior guidelines and empower the agencies to bring enforcement actions in line with theories applied in recent investigations and merger challenges.

  • Merger Fees Changing

Congress’ $1.7 trillion fiscal year 2023 spending package includes meaningful changes to merger filing fees. The Merger Filing Fee Modernization Act will change filing fees for deals less than $1 billion to a range of $30,000 and $250,000. The Act would also increase fees for mergers greater than $1 billion, with fees ranging from $400,000 to $2.25 million. All fees will be tied to inflation through the Consumer Price Index.


  • The EC Launches a Consultation on Its Draft Revised Market Definition Notice

On November 8, 2022, the EC launched a public consultation on its draft revised Market Definition Notice. The Market Definition Notice is being revised for the first time since its adoption in 1997, taking into account significant developments, including competition on non-price elements (such as innovation and quality), the development of digital and innovation-intensive markets, and increasing globalization.

The proposed changes, which will impact how the EC analyses transactions, provide new or additional guidance on various key market definition issues, including:

  • Explanations on the principles of market definition and the way market definition is used for the purpose of application of competition rules.
  • Greater emphasis on non-price elements such as innovation and quality of products and services.
  • Clarifications regarding the forward-looking application of market definition, especially in markets that are expected to undergo structural transitions, such as technological or regulatory changes.
  • New guidance in relation to market definition in digital markets, including, for example, multi-sided markets and “digital eco-systems” (e.g., products built around a mobile operating system).
  • New principles on innovation-intensive markets, clarifying how markets should be assessed where companies compete on innovation, including through pipeline products.
  • More guidance on geographic market definition, including the conditions to define global markets, the approach to assessing imports, as well as the EC’s approach to local markets defined by catchment areas (e.g., in the retail sale of consumer goods).
  • Clarification in relation to the quantitative techniques, such as the small but significant and non-transitory increase in price (SSNIP) test, that the EC may use when defining a market.
  • Expanded guidance on possible sources of evidence and their probative value, based on the EC’s material experience and fact-based approach to market definition.

While these are only proposed changes, the final version is expected to be released in 2023, after receiving public comments.


  • UK Orders a Chinese Firm to Divest Its 83% Controlling Stake in a Welsh Semiconductor Wafer Factory Based on National Security Concerns

On November 16, 2022, the UK Secretary of State for Business, Energy and Industrial Strategy (BEIS) effectively blocked a transaction in the semiconductor industry under the National Security and Investment Act 2021 (the NSI Act). Nexperia, ultimately owned by Wingtech of China, was ordered to divest its 86% controlling share of the UK-based Newport Wafer Fab (Newport), following a prolonged NSI review which commenced on May 25.

The Newport/Nexperia deal is the first example of BEIS using its powers to review transactions that closed prior to the NSI Act coming into force. The BEIS justified the prohibition on the basis of two main national security concerns: the “technology and know-how that could result from a potential reintroduction of compound semiconductor activities at the Newport site [could] undermine UK capabilities,” and “the location of the site could facilitate access to technological expertise and know-how in the South Wales Cluster (“the Cluster”), [which in turn] may prevent the Cluster being engaged in future projects relevant to national security.”

National security, or foreign direct investment, filings and reviews are becoming an increasingly important factor in M&A clearance.