First published in Antitrust News & Notes, October 2011
The U.S. Department of Justice (DOJ) Antitrust Division issued an updated version of its Policy Guide to Merger Remedies. This is a policy statement used by attorneys within the Antitrust Division to help guide them regarding the appropriate remedy in a merger investigation. As stated in the Policy Guide, the underlying purpose of all merger remedies is to preserve the level of competition that existed before the merger.
In general, the DOJ will pursue two basic types of remedies in merger cases. In horizontal mergers between actual or potential competitors, the DOJ will typically require structural remedies, such as requiring the merging parties to divest assets or entire business divisions to a third party. Conduct remedies, which require behavioral obligations or restrictions on the merged entities, are more likely to be used in vertical mergers, that involve the combination of parties with an actual or potential customer-supplier relationship.
For the DOJ to be satisfied with a divestiture remedy, the assets — physical and intangible — that are sold must allow the purchaser "to compete effectively with the merged entity." The DOJ prefers divestitures that involve the sale of an existing business entity that has "demonstrated its ability to compete in the relevant market." In some cases, a divestiture of less than an existing business may be sufficient for the DOJ. For example, the DOJ may accept such a divestiture if it is persuaded that the merging entities can sell a package of assets that allows the purchaser to preserve the existing level of competition. In other instances, the DOJ may require the merging parties to divest more than an existing business entity. For example, in some industries, firms may not be able to compete without a "full line" of products and may require assets necessary to produce the full line even if the merger raises competitive concerns in only a subset of these product markets.
Beyond divestitures, the other common types of relief include
information firewalls, nondiscrimination provisions, mandatory
licensing, transparency and anti-retaliation provisions, and
restrictions on certain contracting practices. Firewalls are used
if the DOJ is concerned that, for example, an upstream monopolist
will share information with its acquired downstream entity and
other downstream firms to facilitate anticompetitive behavior.
Non-discrimination provisions require an upstream monopolist to
provide critical inputs on the basis of equal access, equal
efforts, and equal terms, preventing the possibility that the
upstream firm offers less attractive terms to, or refuses to deal
with, the rivals of its downstream affiliate. Mandatory licensing
is similar to non-discrimination and requires the merged entity to
license technology or other intangible assets on fair and
reasonable terms. Transparency requirements require the merged
entity to provide information to a regulatory agency that it
otherwise would not have to provide. Anti-retaliation provisions
prohibit the merged entity from retaliating against customers or
others who, for example, do business with its competitors or who
report possible consent decree violations to the DOJ. Prohibitions
on restrictive contracting typically bar the merged entity from
using exclusive contracts or automatic renewal provisions, which
can exclude competitors and new entrants.
The DOJ pursues hybrid remedies for some potentially
anticompetitive mergers where a combination of conduct and
structural remedies may be necessary to preserve competition. For
example, in some mergers, the DOJ may require the merging parties
to divest certain customer contracts (structural relief) and
refrain from exclusive dealing (conduct relief).
The timing of the remedy plays a major role in structural relief. Sometimes, the merging parties may seek a "fix-it-first" remedy that resolves competitive concerns without forcing the DOJ to file a complaint. For the DOJ to accept a fix-it-first remedy, it must be satisfied both that the proposed remedy will preserve competition and that it will not require additional conduct remedies to be effective.
In most cases, however, the assets will be divested after the transaction is consummated. Generally, the DOJ will require the merging parties to identify a package of assets to divest pursuant to a consent decree. Furthermore, the merging firms have to identify at least one acceptable purchaser for the package or convince the DOJ that the package will attract a purchaser who can effectively preserve competition. If the DOJ and the parties disagree over what assets should be included in a divestiture package, they may agree to a "crown jewel" provision, which requires the parties to include additional valuable assets if an appropriate purchaser cannot be found.
Once a package of assets is identified, the DOJ will impose certain measures to ensure the effective implementation of the remedy. While emphasizing the importance of a speedy divestiture, the DOJ will include a hold separate provision in the consent decree that requires the divestiture package to be maintained as a separate, distinct, and saleable entity. The DOJ may also appoint operating trustees if it thinks the merging parties have the ability and incentive to mismanage the divestiture assets in the interim. It may also appoint monitoring to ensure that the parties comply with the decree. If the merging parties fail to sell the divestiture package in the prescribed period, the DOJ may request a court to appoint a trustee to complete the sale. Finally, the DOJ must approve any proposed purchaser based on whether (1) the divestiture of the assets will not cause competitive harm, (2) the purchaser has the incentive to use the acquired assets to compete in the relevant market, and (3) the purchaser has "sufficient acumen, experience, and financial capability" to compete effectively in the long term.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
