On May 16, 2023, the Federal Trade Commission filed a complaint in the Northern District of Illinois seeking to enjoin closing of Amgen Inc.’s proposed $28 billion acquisition of Horizon Therapeutics. This is the first time in over 40 years that a US antitrust agency has challenged a transaction based on a “conglomerate” theory of competitive harm—that is, concerns based on neither direct competition nor a supplier-purchaser relationship between the merging parties. Although both parties develop and supply pharmaceuticals, the FTC alleged neither that they currently supply or are developing competing products nor that one party supplies inputs to the other. Instead, the FTC alleged that by combining two drugs—one for treating thyroid eye disease (TED) and another for treating chronic refractory grout (CRG)—for which Horizon enjoys a monopoly with Amgen’s broad portfolio of leading drugs, the proposed merger could enable the merged firm to offer customers, i.e., pharmacy benefit managers (PBMs) or insurers, discounts that are conditioned on the customer buying multiple drugs from the merged firm.1 The FTC claims that such discounts could exclude from the market or marginalize future entrants with drugs to treat CRG or TED.2 The parties have said they intend to litigate the FTC’s challenge in court.
The FTC’s revival of merger challenges based on conglomerate concerns could have important implications for companies with a leading position in one or more product areas that are seeking to acquire a target with a leading position for one or more other products that are sold to the same customers. The antitrust risk may be greatest for transactions in the pharmaceutical sector, but the FTC might seek to pursue conglomerate cases in other sectors also.
Dormancy of Conglomerate Merger Enforcement
For over 40 years, US antitrust challenges to mergers have been grounded in one of two broad types of competitive concerns: the merger will combine (i) current or (occasionally) future horizontal competitors, impairing competition by eliminating a competitor or (ii) entities in a vertical relationship—e.g., one party supplies inputs (e.g., parts or distribution services) for products that the other supplies—with the vertical integration harming competition in an upstream or downstream market. Since the late 1970s, the agencies have not challenged mergers between parties that are in neither a horizontal nor a vertical relationship based on a theory of conglomerate competitive harm.3
The US antitrust agencies and private litigants have sometimes challenged allegedly anticompetitive bundled discounts and similar practices as illegal restraints of trade or monopolization. Indeed, the FTC cites in its complaint an ongoing challenge to alleged Amgen bundled discounts on various types of drugs.4 The FTC’s theory in seeking to block Amgen’s proposed acquisition of Horizon is that the merged firm will hold a portfolio of various types of drugs that will give it the incentive and ability to engage in anticompetitive bundled pricing. The novelty of the FTC’s approach here is that rather than challenge conduct when and if it actually occurs post-acquisition, the FTC is seeking to prohibit the parties from creating a product portfolio that will allegedly enable an anticompetitive business strategy.
Merger investigations into potential conglomerate concerns are more familiar at the European Commission. But even the EC has not sought to prohibit a transaction based on conglomerate concerns since its challenges to GE/Honeywell and Tetra Laval/Sidel in the early 2000s.
It is unclear whether the FTC’s challenge to Amgen/Horizon is an outlier or whether challenges based on conglomerate concerns will occur more regularly. But the FTC’s newfound focus on conglomerate theories presents a new dimension of potential antitrust risk for parties contemplating a merger that will combine firms that both have leading positions in products that are commonly sold to the same customers—even if the parties are in neither a horizontal nor a vertical relationship. If conglomerate challenges become something more than outliers going forward, the risk level will depend on many factors, including (among others) competitive conditions in the parties’ respective markets, whether competing suppliers also have broad product portfolios, whether the parties’ respective products are typically bought together in a single transaction, and countervailing strategies that may be available to the merged firms’ customers. It may well be, moreover, that the risk of an extended investigation or challenge based on a conglomerate theory is substantially greater for a transaction in the pharmaceutical sector, where the FTC has been especially focused and is currently conducting a market study of PBMs, which is directed in part to discounting and rebating practices.5 FTC officials have said that the forthcoming FTC/DOJ merger guidelines will address conglomerate theories of harm, which should shed additional light on the agencies’ intended approaches.6
Finally, it is important to recognize that the US agencies cannot block a transaction from closing absent an injunction from a court. It remains to be seen whether the courts will be receptive to conglomerate theories of competitive harm, and the FTC’s likelihood of success may turn on its ability to present persuasive real-world evidence such as testimony or documents that validate theoretical concerns. Moreover, we expect the FTC will need good responses to a foundational question courts are likely to ask: why must a transaction be prohibited based on concerns about potential future anticompetitive conduct that could be challenged if and when it actually happens?