On September 3, 2020, the U.S. Department of Justice's (DOJ) Antitrust Division released a revised Merger Remedies Manual. This revised manual is the culmination of a review by the Antitrust Division of its entire approach to merger remedies that started two years ago. In 2018, the Antitrust Division withdrew its previous guidance on merger remedies from 2011 and reinstated its 2004 Policy Guide to Merger Remedies. The 2011 guidance had eliminated the Antitrust Division's absolute preference for divestitures (known as structural remedies) over behavioral relief (known as conduct remedies), noting that different types of mergers present "different competitive issues and, as a result, different remedial challenges." The withdrawal of the 2011 guidelines and the reinstatement of the 2004 guidelines was viewed as a return to the Antitrust Division's preference for divestitures over behavioral relief. The revised Merger Remedies Manual firmly codifies the return of that preference with even stricter language in certain circumstances.
Key Principles for Merger Remedies
According to the Antitrust Division, the manual reflects its current policy framework for implementing remedies in merger cases where the parties seek to resolve competitive concerns via a settlement that allows the merger to proceed with changes that preserve or restore competition. The manual identifies the key principles that the Antitrust Division applies to structuring and implementing remedies in both horizontal and vertical merger cases:
- Remedies must preserve competition.
- Remedies should not create ongoing government regulation of the market.
- Temporary relief should not be used to remedy persistent competitive harm.
- Any benefits that specific competitors receive from the remedies should be incidental to the primary goal of protecting competition overall.
- The risk of a failed remedy should fall on the parties, not on consumers.
- Remedies must be easily enforceable.
Standard Provisions in Merger Remedies
The revised Merger Remedies Manual also describes several standard consent decree provisions designed to improve the effectiveness of the consent decrees and the Antitrust Division's ability to enforce them.
- To the extent possible, divestitures must be completed promptly.
- Hold separate and asset preservation provisions are necessary for most consent decrees.
- Selling trustee provisions must be included in consent decrees.
- Monitoring trustees may also be required.
- Restraints on the resale of divestiture assets generally will not be required.
- Prior notice of future deals that might otherwise be non-reportable may be required.
- The consent decree must bind all of the entities against which enforcement may be sought.
- The consent decree must provide a means to investigate and confirm compliance.
- Consent decrees must include provisions allowing effective and efficient enforcement.
These key principles to be considered in connection with a consent decree are intended to emphasize the Antitrust Divisions' strong preference for structural remedies over conduct remedies because according to the Antitrust Division, divestitures are "clean and certain, effective, and avoid ongoing government entanglement in the market." However, the Antitrust Division acknowledges in the Merger Remedies Manual that in some limited circumstances, conduct remedies may still be appropriate: (1) in combination with divestitures to increase the effectiveness of the divestiture; or (2) if there are significant efficiencies that would be lost through a divestiture, the conduct remedies would completely cure the competitive harm, the conduct remedies can be effectively enforced, and a divestiture is not possible.
Elements of a Successful Remedy
The revised Merger Remedies Manual identifies the following elements that the Antitrust Division will be looking for in a remedy and corresponding consent decree:
- Divestiture of an existing standalone business is strongly preferred.
- Divestiture of more than an existing standalone business may be required when it is necessary to preserve competition.
- Divestiture of less than an existing standalone business, such as an asset carve-out, will only be considered in limited, special circumstances.
- All assets to be divested must be specified in the consent decree.
- Permitting the merged firm to retain access to divested intangible assets may present a competitive risk.
Finally, the Merger Remedies Manual highlights the role of the Antitrust Division's newly created Office of Decree Enforcement and Compliance, which oversees consent decree compliance.
In most merger cases, the Antitrust Division will require the identification of a specific, acceptable buyer before the Antitrust Division enters into the consent decree. In such cases, the parties must identify an acceptable "upfront" buyer and then negotiate, finalize, and execute the purchase agreement and all ancillary agreements with that buyer before the Antitrust Division will finalize and enter into a consent decree.
The Antitrust Division will consider three factors when evaluating potential divestiture buyers: (1) a divestiture to that proposed buyer must not cause any competitive harm; (2) the proposed buyer must be committed to maintaining competition in the market at issue (as opposed to redeploying the divested assets to other markets); and (3) after the divestiture, the proposed buyer must be "fit" to effectively compete over the long term (i.e. the buyer must "sufficient acumen, experience, and financial capability to compete effectively in the market").
Private Equity Buyers
The Antitrust Division specifically notes that it "will use the same criteria to evaluate both strategic purchasers and purchasers that are funded by private equity or other investment firms." Not only will they not be held to a different or higher standard, but the Antitrust Division noted that "in some cases a private equity purchaser may be preferred" citing private equity firms' flexibility in investment strategy, commitment to the divested business, willingness to investment more in the business as necessary, and willingness to partner with other individuals or entities with relevant experience. This potential preference offers a different perspective on private equity's role in merger activities than recent comments made by FTC Commissioners Chopra and Slaughter.
Federal Trade Commission's Views on Merger Remedies
It is worth noting that unlike the Vertical Merger Guidelines that were jointly issued by DOJ and the Federal Trade Commission (FTC), the FTC has not adopted the Antitrust Division's new Merger Remedies Manual. However, the FTC has been wary of conduct remedies in the past and former FTC Director of the Bureau of Competition Bruce Hoffman has publicly stated that the FTC continues to be skeptical of conduct remedies, even in vertical merger cases. How FTC views the Merger Remedies Manual and if it has any impact on how they evaluate potential merger remedies remains to be seen.
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