When a board approves a merger, the business case usually rests in part on expected synergies, the value the combination is expected to create. Antitrust review asks a different question. Under Section 7 of the Clayton Act, the U.S. Department of Justice and the Federal Trade Commission (together, the "Agencies") assess whether the merger may substantially lessen competition, and the Merger Guidelines allow the parties to rebut a showing of competitive harm with proof of cognizable efficiencies: efficiencies that are merger-specific, not anticompetitive, and verifiable.
Synergies and cognizable efficiencies are not the same, and conflating them is a recurring source of confusion for the executives of merging parties. The synergies a board weighs in approving a transaction do not all qualify as efficiencies the Agencies and courts will credit against a merger's potential anticompetitive effects. Once the Agencies establish a prima facie case of likely anticompetitive harm, the parties bear the burden of proving that their claimed efficiencies are cognizable and sufficient to render the merger not anticompetitive. Yet neither the Merger Guidelines nor the case law prescribes the standards, methods, or tests by which a cost efficiency is to be measured and verified.
