United States: FTC Issues Report Confirming The Effectiveness Of Its Own Merger Remedies

On February 3, 2017, the Federal Trade Commission released a report called "The FTC's Merger Remedies 2006-2012: A Report of the Bureaus of Competition and Economics." The report summarizes the findings of a study conducted by the Commission staff examining all 89 merger consent orders issued by the Commission between 2006 and 2012 to determine their effectiveness in maintaining or restoring competition to pre-merger levels.

The report's main conclusion is that the Commission's consent orders are generally effective, but the statistics suggest that close to 20% of the orders reviewed using a case study approach failed to maintain or restore competition to pre-merger levels.

The report's main conclusion is that the Commission's consent orders designed to eliminate the potential anticompetitive effects of certain mergers are generally effective at protecting competition and/or restoring competition to pre-merger levels within two to three years. According to the report, of the 50 orders examined as part of the study's case study component, "more than 80%" maintained or restored competition to pre-merger levels. Yet that same statistic suggests that around 20% of the orders in the study's case study component were unsuccessful in maintaining or restoring pre-merger levels of competition, which is perhaps the most noteworthy finding in the report. Additionally, although the study assessed the effectiveness of all orders during the selected period of 2006 through 2012, that period notably did not include two more recent orders involving buyers of divested assets that went into bankruptcy within a year — a 2013 consent decree that allowed Hertz to buy rival car rental company Dollar Thrifty and a 2015 order that allowed Albertsons to acquire competing supermarket chain Safeway.

Among the Commission's additional conclusions were that divestitures of ongoing businesses succeeded more often than divestitures of limited asset packages in horizontal mergers, and that orders involving pharmaceutical products still in development were successful 100% of the time.

The Commission used a variety of methodologies to assess all 89 merger orders during the relevant period.

To conduct the study, Commission staff examined all 89 merger orders issued by the Commission between 2006 and 2012, including those requiring divestitures. All 89 orders were consent orders and the vast majority addressed horizontal concerns (only four involved vertical mergers). For purposes of the study, the 89 orders were divided into three groups as follows:

  • First, staff examined 50 orders using a case study method and supplemented their findings by interviewing additional market participants and reviewing seven years of relevant sales data, which they required significant competitors to submit.
  • Second, staff evaluated 15 orders affecting supermarkets, drug stores, funeral homes, dialysis clinics, and other health care facilities by examining responses to voluntary questionnaires submitted by Commission-approved buyers. 
  • Third, staff evaluated 24 orders affecting the pharmaceutical industry by analyzing internal information and publicly available data.

The Commission provided only a vague description of its standard of success and perhaps did not consider prices before and after the relevant mergers in deciding whether its remedial orders were successful.

Although the report asserts that most of the Commission's orders during the relevant period were successful, the report only vaguely describes the standard for success employed by the staff in conducting significant portions of the study. In describing the methodology for assessing orders involving horizontal mergers with a structural remedy included in the first part of the study, for instance, the report states only that "the focus was the competitive significance of the buyer of the divested assets (i.e., the new competitor created by the Commission's order). The principal question was whether the buyer maintained the competition that existed in the market before the merger." The report fails to explain what it means by "maintain[ing] competition," and, although the Commission appears to have taken a totality-of-the-circumstances approach, the study did not appear to focus on — or necessarily consider — whether prices had increased after the relevant merger was completed.

The Commission was more specific about its standard of success in the portion of the study reviewing 24 orders involving the pharmaceutical industry. According to the report, for products that were already on the market, the divestiture of those products "was considered successful if the buyer sold the product in the market post-divestiture." Similarly, for products in development, "the divestiture was considered successful if all assets relating to those products were successfully transferred." Accordingly, for that portion of the study, it appears that the Commission did not consider post-merger prices charged, market penetration of the divestiture buyer, or profitability of the buyer in its analysis.

The report identifies a series of best practices for respondents, buyers, and Commission staff to consider going forward.

Although the report's main conclusions were positive, the report identifies certain areas of concern raised by buyers over the course of the study that the Commission plans to address going forward. These areas of concern included issues relating to defining the scope of a limited asset package, the adequacy of resources available for buyers to conduct due diligence, and the transfer of back-office functions from respondents to buyers. The report includes a section on best practices with respect to each of these areas to guide respondents, buyers, and Commission staff as to how to handle these aspects of the merger remedy process in the future. According to the report, the best practices described "do not reflect significant changes to the Commission's current practice, but rather further refine the Commission's approach to remedies and the remedy process."

Many of the best practices identified by the Commission focus on improving communication and the exchange of resources between buyers, respondents, and Commission staff. For instance, with respect to back-office functions, the Commission notes that respondents should "explain to staff and the buyer all back-office functions related to all relevant products, as well as all necessary personnel and documentation; ensure that the proposed buyer can conduct adequate due diligence to understand what back-office functions will be needed and the complexities involved in the transfer of such functions; make its information technology employees available to discuss and plan the transfer of the back-office functions with the buyer; and provide back-office functions to the buyer as needed on a transitional basis for a period sufficient to allow the buyer to transition all services, at no more than respondent's cost." Along similar lines, the Commission notes that buyers should: "explain to staff the scope of back-office functions it will need to support the asset package and how it will provide or obtain these functions and at what cost; and explain the length of time it will need transition services and its options if the transition takes longer than expected."

The timing of the study was likely influenced by several factors.

This is not the first study of its kind. The Commission conducted a similar study in 1999, which evaluated merger orders requiring divestiture from 1990 through 1994, and concluded at that time that "most divestitures appear to have created viable competitors" in the relevant markets. The Commission initiated the study giving rise to the current report in 2015 following sharp criticism of the Commission's orders from economist John Kwoka, a professor at Northeastern University, and others, who claimed that the Commission's merger remedies, which are designed to maintain or restore competition despite a merger, do not work. Kwoka and others maintain that the Commission should block more deals outright rather than permit transactions conditioned on partial divestitures or conduct remedies intended to eliminate or minimize adverse effects on competition.

The report was released a week before outgoing Commission Chairwoman Edith Ramirez's last day as a commissioner on February 10, 2017. Maureen Ohlhausen, who has been a commissioner since April 2012, was named Acting Commission Chairwoman on January 25, 2017.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions