A merger is when two separate firms come under common ownership or control. A merger in itself is not illegal. For antitrust purposes, a merger can occur with the purchase by one firm of all or most of the other firm’s assets or shares, or with a consolidation.
A horizontal merger occurs when one firm acquires another firm that manufactures the same product or a close substitute, and both firms operate in the same geographic market. If it is the same product but different markets, or different products and the same market, it is considered a vertical or conglomerate merger. The antitrust concern is mainly with horizontal mergers, as the situation arises in which there are fewer competitors after the merger, as well as the creation of one firm with a larger market share…
Under section 7 of the Clayton Act, mergers that may substantially lessen competition or tend to create a monopoly are prohibited. The Clayton Act also creates requirements as to notification prior to a merger occurring. Actions to enforce this section may be brought by the United States Department of Justice, the FTC, by state attorneys general, or by private litigants. A merger may also be attacked as in violation of either sections (1) or (2) of the Sherman Act or as a violation of section (5) of the FTC Act. Merger Guidelines have been issued jointly by the FTC and the Antitrust Division of the Justice Department.(1) The National Association of Attorneys General has also issued horizontal merger guidelines.(2)
Excerpted with permission of the author from: American Business Law A Civil Law Perspective, Laura Carlson, J.D. (USA), LL.M. (Sweden)