Negotiating Remedies: A Perspective from Various Agencies

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Introduction

This chapter presents the perspective of agencies when they engage in settlement negotiations. It attempts to describe what agencies will demand both substantively and procedurally if they agree to resolve a merger without blocking the deal entirely. In the main, the landscape among international antitrust enforcers is similar to past practices, with a notable exception that the United States enforcers appear much less receptive to settlement proposals. There is increasing reluctance in the US to settle merger violations and a preference to challenge them instead. This chapter highlights some of the issues that this new posture presents and begins with a brief overview.

A further distinction in the United States is the Federal Trade Commission’s (FTC’s) recent announcement of a policy requiring that merger orders (consent or otherwise) contain a prior approval provision prohibiting the merged firm from making future acquisitions in the market without the FTC’s advance approval. The FTC’s announcement represents a return to its policy pre-1995 and expands the scope to cover sales by the divestiture buyer and acquisitions in markets beyond those alleged in the complaint. This chapter discusses the FTC’s renewed policy in more detail below and notes its distinction from that at the US Department of Justice Antitrust Division (the Antitrust Division or DOJ). The increased scepticism towards merger settlements in the US and the FTC’s return to a demand for a prior approval provision are the most significant recent developments in merger remedies. Other national enforcers have not announced similar policy changes.

Increased reluctance to negotiate remedies in the United States

The Antitrust Division and FTC have both publicly expressed their scepticism about the efficacy of negotiated remedies to resolve merger violations. Assistant Attorney General Jonathan Kanter stated his position clearly:

Our duty is to litigate, not settle, unless a remedy fully prevents or restrains the violation. It is no secret that many settlements fail to preserve competition. Even divestitures may not fully preserve competition across all its dimensions in dynamic markets. And too often partial divestitures ship assets to buyers like private equity firms who are incapable or uninterested in using them to their full potential.
At the Department of Justice, we are law enforcers. It is not our role to micromanage corporate decision making under elaborate consent decrees. It is our job to enforce the law. And when we have evidence that a defendant has violated the law, we will litigate to remedy the entire harm to competition. That will almost always mean seeking an injunction to stop the anticompetitive conduct or block an anticompetitive merger.[2]

AAG Kanter had made the same point early in his tenure, although a bit less categorically:

I am concerned that merger remedies short of blocking a transaction too often miss the mark. Complex settlements, whether behavioral or structural, suffer from significant deficiencies. Therefore, in my view, when the division concludes that a merger is likely to lessen competition, in most situations we should seek a simple injunction to block the transaction. It is the surest way to preserve competition.
That is not to say divestitures should never be an option. Sometimes business units are sufficiently discrete and complete that disentangling them from the parent company in a non-dynamic market is a straightforward exercise, where a divestiture has a high degree of success. But in my view those circumstances are the exception, not the rule.[3]

Similarly, the director of the FTC’s Bureau of Competition reflected that agency’s scepticism in remarks earlier this year:

Over time, remedies have become increasingly complex and, our studies tell us, prone to implementation failures. We can’t expect different results if we keep doing the same thing. So we are rethinking our practices and taking a different approach—one that limits the types of remedies that we will recommend the Commission accept. This means moving away from what Commissioner Slaughter and Chair Khan recently called remedies with ‘numerous, complicated, and long-standing entanglements. While this statement was recent, in many ways this change has been a long time coming.
The Bureau of Competition will only recommend acceptance of divestitures that allow the buyer to operate the divested business on a standalone basis quickly, effectively, and independently, and with the same incentives and comparable resources as the original owner . . . We will no longer consider remedies where there is heightened risk of failure. These include proposals of less than standalone business units, or where there are forward-looking entanglements between the buyer and seller, such as supply agreements, or where there is no strong and independent buyer. We also very strongly disfavour behavioral remedies because not only are they very difficult to enforce, but also because they never seem to work.[4]

Along with these public pronouncements, other statements reflect a general view that negotiated remedies will be more the exception than in the past and, especially, that the agencies should not spend much time entertaining offers. Indeed, the agencies seem less interested in providing guidance for parties attempting to settle. Although the Antitrust Division continues to post its Mergers Remedies Manual (2020) on its website, the manual has been withdrawn and remains available for ‘historical purposes’.[5] This suggests that merging parties should not assume the Division will follow its previous practices. Finally, when the agencies announced their reconsideration of the horizontal merger guidelines, they asked, ‘Should the guidelines adopt a formal process and deadlines for remedy proposals? How should any such approach be structured?’.[6] The recent release of the proposed merger guidelines, however, expressly avoids any discussion of relief, timing or otherwise.[7]

The US enforcers’ scepticism about accepting negotiated remedies extends to vertical mergers as well. A recent example is the FTC’s decision and order in its challenge to Illumina’s acquisition of GRAIL. After concluding that the vertical deal violated the law, the decision explains why the behavioural terms (the ‘open order’) that the parties had implemented unilaterally, and had urged as a remedy, would not remove Illumina’s inherent incentive to favour its own business. Reading this portion of the decision makes clear that terms that sometimes have been accepted in prior settlements were rejected as inadequate:

As previously discussed, an integrated Illumina will have a strong incentive to favour GRAIL to the detriment of its rivals. Illumina’s MCED test developer customers are dependent on it in myriad ways. They rely on Illumina not just for their purchases of NGS instruments and consumables but also for service and support, access to new technology, and regulatory approval; from initial provision of the NGS platform to the development and commercialization of an assay using the platform, Illumina is a critical partner in ensuring its customers’ success. To serve as a plausibly effective remedy, the Open Offer would need to foresee and foreclose all possible ways Illumina could harm GRAIL’s competitors.[8]

The decision concludes that Illumina’s pricing, service, information availability, product modification, and confidentiality commitments leave too much to Illumina’s control. Further, the decision concludes that enforcing these terms ‘would be difficult . . . as enforcement would require Illumina’s cooperation against its own self-interest’. The FTC’s rejection of the kinds of non-structural remedies sometimes accepted in prior vertical mergers reveals an increased demand for purely structural relief.

Further evidence of the Antitrust Division’s resistance to accepting remedies can be found in its complaint in the one case that the Division did, ultimately, settle, U.S. v. ASSA ABLOY AB, et al.[9] The Division sought to block a merger between two leading competitors in residential door hardware, specifically:

  • ‘premium mechanical door hardware’; and
  • ‘smart locks, which are wirelessly connected digital door locks’.

The complaint, filed as part of the challenge (and before ultimate settlement) explains why the settlement offer made by the parties before litigation was unacceptable:

Acknowledging the harm that their proposed transaction would cause to competition, the Defendants have offered to sell off selected portions of ASSA ABLOY’s globally integrated business. But offering a complex divestiture of carved-out assets from a globally-integrated business in an attempt to remedy a deal that presents a massive competitive problem would leave American consumers to bear the significant risks that the divestiture would fail to preserve the intensity of existing competition. Regardless of who the unknown buyer turns out to be, such a hazardous corporate restructuring would be inadequate to remedy the harms of Defendants’ anticompetitive deal. The only remedy that will preserve competition is to stop the proposed transaction outright.[10]

Indeed, when the parties did reach a settlement, after trial had begun, the Antitrust Division’s explanation of that resolution remarkably again noted in its required competitive impact statement that the settlement, although providing greater relief than the parties originally offered, was not completely adequate:

The United States does not contend that the relief obtained by the proposed Final Judgment will fully eliminate the risks to competition alleged in the Complaint. The United States respectfully submits that only a complete injunction preventing the original proposed merger would have eliminated those risks. Alternatively, complete divestitures of all relevant standalone business units necessary to fully compete may have diminished those risks significantly. Based on the totality of circumstances and risks associated with this litigation, however, the United States has agreed to the proposed Final Judgment, which includes additional provisions and protections to address some of the concerns identified above. The United States believes the Court will conclude the proposed Final Judgment is in the public interest under the Tunney Act.[11]

The stated positions of the two US enforcement agencies reflect the view that problematic mergers should not proceed. To be sure, the agencies have been reluctant to accept non-structural remedies for many years, and although these newly stated positions are more demanding, they are not a complete change from prior practice.[12] Further, the 2017 study of merger remedies released by the FTC concluded that the most successful remedies were those that comprised entire businesses, were done upfront (i.e., at the time of the settlement) and avoided complex behavioural terms.[13] Nevertheless, the conclusions to draw from these recent public statements should be that, first, although parties may still propose solutions to merger cases, the agencies will likely be more demanding than in the past and, second, the agencies are less willing than previously to give guidance on how they may approach settlement negotiations. Parties proposing to resolve merger cases at the US agencies should expect to meet a sceptical and demanding audience. Perhaps more so than in the past, the agencies appear reluctant to accept remedies that will not clearly, assuredly, and rapidly eliminate any competitive harm from the merger. That reluctance will colour how the agencies react to divestiture offers, especially if they are not complete or if they include complicated behavioural provisions.

FTC returns to requiring prior approval

In mid-2021, the FTC voted to return to requiring merger orders to include prior approval requirements.[14] This sets the FTC apart from most other merger enforcers, including the Antitrust Division and, accordingly, warrants discussion before turning to other points.

Prior approval provisions require a merger respondent to obtain the FTC’s advance approval for future acquisitions, usually in the defined relevant markets, for a 10-year period. The rescinded 1995 policy statement, itself a change from the FTC’s prior policy, had announced that the FTC would not routinely require respondents in merger cases to obtain prior approval. Chair Khan, in a statement accompanying the 2021 withdrawal, noted that the absence of a prior approval requirement had burdened the FTC with reviewing renewed acquisitions by firms that had recently been determined by the FTC to have engaged in an unlawful acquisition.

Without the ‘prior approval’ provision, the FTC could spend months reviewing documents, interviewing parties, and thoroughly investigating a merger the agency determined was unlawful; spend additional months drafting a complaint and pursuing judicial or administrative proceedings; spend yet more months negotiating with the companies to enter into a settlement agreement rather than pursue the deal; and then be forced to re-do all this work any time the companies attempted a similar acquisition—even though the agency had already previously determined that this type of deal was illegal.[15]

When the FTC withdrew the 1995 policy statement, it was unclear what the scope would be: whether all merger respondents would be subject to the provision,[16] whether buyers of divested assets would be subject to a prior approval obligation before selling the divested business and how long such provisions would run. The FTC subsequently issued a new policy statement in October 2021,[17] and the FTC’s merger record since then seems to answer those questions.

The 2021 policy statement announces that:

Going forward, the Commission returns to its prior practice of including prior approval provisions in all merger divestiture orders for every relevant market where harm is alleged to occur, for a minimum of ten years.

The statement continues, with regard to the use of broader prior approvals where additional relief is needed:

In some situations where stronger relief is needed, the Commission may decide to seek a prior approval provision that covers product and geographic markets beyond just the relevant product and geographic markets affected by the merger.

And, with regard to divestiture buyers:

The Commission will also require buyers of divested assets in Commission merger consent orders to agree to a prior approval for any future sale of the assets they acquire in divestiture orders, for a minimum of ten years. This will ensure that the divested assets are not later sold to an unsuitable firm that would contravene the purpose of the Commission’s order. The Commission has on occasion in the past required divestiture buyers to agree to such prior approval terms; going forward the Commission intends to require all buyers to do so.

Subsequent consent orders have clarified the policy’s application to divestiture buyers. Accordingly, all respondents should expect to be subject to a prior approval obligation for future acquisitions for 10 years, and divestiture buyers will be subject to the requirement if they propose to sell the assets to any person within three years and to any market member within 10 years.[18] The routine application of a prior approval obligation on buyers of divested assets is broader than the FTC’s prior limited use of such provisions to specific cases where the buyer is more likely to consider a resale.[19] Equally notable: the FTC stated that it would be less likely to seek a prior approval provision if a firm abandons its merger prior to certifying compliance with the ‘second request’, and warned, ‘The fact that parties may abandon a merger after litigation commences does not guarantee that the Commission will not subsequently pursue an order incorporating a prior approval provision.’[20]

Finally, the FTC has issued consents with prior approval provisions reaching more broadly than the specific geographic markets alleged in the complaint.[21]

The FTC’s policies regarding prior approval differ from the Antitrust Division. It is particularly notable that the Antitrust Division, which had never used prior approval obligations to police future acquisitions by defendants, has apparently not adjusted its approach in the wake of the FTC’s recent policy change.[22] In the one case that the Antitrust Division settled under the new administration, the (proposed) final judgment orders that, ‘ASSA ABLOY may not reacquire any part of or any interest in the Divestiture Assets during the term of this Final Judgment without prior authorization of the United States.’[23]

The current divergence between the FTC and Antitrust Division underscores that cases, and any settlement negotiations, may be handled quite differently, depending on which enforcer is involved. It now appears that whether merging parties who do settle will have to accept a prior approval provision will depend primarily on which US agency conducts the investigation. Whether that divergence will persist is unclear.[24]

The rest of this chapter focuses on the important points that parties must understand whenever they pursue a negotiated merger settlement with one (or several) of the enforcement agencies. For most cases, the question in the US will be whether the agencies will engage in settlement talks – if they do, the policies and procedures will be similar to past practice.

Negotiating with the agency – the essentials

When and if merging parties pursue settlement, they must begin from the perspective of the agency: the merger would violate the law and, absent an acceptable remedy, should be blocked. Unlike the give-and-take of commercial negotiations, the agency is not trying to find some middle ground or otherwise trade away its core requirements in return for a settlement. The agency, simply put, will be seeking a resolution that prevents the competitive harm that the merger would otherwise create.[25] Nevertheless, fruitful discussions may address how a proposed remedy addresses the agency’s identified harm – there may be alternative routes that both protect competition and satisfy the parties’ needs.

The agencies’ goal in all settlement discussions is to fully restore or maintain the competition that the merger would eliminate.[26] Unless the agency can conclude that a remedy will fully maintain competition, it is likely to reject the proposal and sue to block the merger. The agency will resist partial solutions that leave problems unresolved.[27] The parties should be prepared, therefore, to show how their proposed remedy will solve the competitive problems identified by the agency.[28] If the parties have any doubts about staff ’s views, they should ask. The agency staff will almost always discuss their concerns. In any event, if the parties are unclear about the agency’s view, settlement discussions will quickly identify areas of disagreement.

Enforcers in the US and elsewhere have emphasised that they strongly prefer a complete divestiture of one side’s overlapping assets in the markets alleged in the complaint. A complete divestiture is the cleanest way to quickly create a robust competitor to compete with the merged firm. The divestiture should transfer the current (and expected future) market share and competitive presence of one of the merging firms to a new firm. Although the parties may continue discussing the substantive case, extended discussion about why something less than one side’s market presence should be divested is unlikely to persuade staff and will delay settlement. Reaching early agreement with the agency on this point usually focuses the rest of the discussions on the particulars of which assets and businesses must be divested and how.

Separately, however, the parties must also have a solid understanding of the businesses involved in the merger:

  • how (and where) the products are made;
  • other products that may also be made at the same location;[29]
  • what critical inputs are needed (and where they come from);
  • the role of any sales organisation;
  • supplier and customer relationships; and
  • the importance of research and development.

A successful divestiture is one in which the buyer obtains (or already has) all the pieces that are critical to the success of the business operation.[30] Settlement discussions can be delayed if information needed to design a successful divestiture is not readily available to the parties or their counsel.[31] A complete understanding of both the relevant markets and the way firms operate in those markets will allow the parties and agency staff to agree on what must be divested.

Three risks in every divestiture remedy

The agency will expect the parties to show how their proposal eliminates, or reduces to an acceptable level, three broad categories of risk to a successful remedy.[32] The first risk is that the divested assets will fail to maintain competition because they are insufficient to create a robust competitor. ‘Asset risk’ is heightened when the proposed divestiture excludes assets (including research facilities and intellectual property), contracts or other arrangements that are important to the competing business’s success (even though outside the relevant antitrust market), and marketing divisions. Accordingly, the agency will strongly prefer a divestiture of ‘an ongoing business’.

The second risk is that the buyer will fail to compete successfully with the divested assets, because the buyer lacks other critical assets, or financial or management resources. ‘Buyer risk’ increases as less than a full business is divested. Although enforcers will insist on doing full due diligence on any buyer and will assure the buyer conducts its own diligence, buyer risk cannot be fully eliminated. The agency will expect the parties to minimise that risk and will not accept a proposed remedy if it believes the risk is unacceptably high.

The third risk is ‘implementation risk’. Even if the divestiture business is robust and the agency is satisfied that the proposed buyer has the financial and business capacity to take the divested business and compete successfully, the transfer may nonetheless fail for unanticipated reasons, and the buyer may not become an effective competitor. The agencies will examine the actual mechanics of the divestiture in great detail, and, as with the other risks, will not accept a proposed remedy if the implementation risk is unacceptably high.

These three risks are interrelated. A ‘complete business’ divestiture will reduce the risk that a buyer will fail to obtain all needed assets and relationships and will greatly reduce the risk that the divestiture itself will not proceed smoothly. Similarly, a buyer that fully understands the markets, has deep financial resources, has conducted its due diligence, and has developed a robust business plan will present less risk that the asset package may have failed to include some important piece. Finally, a proposal to divest a complete business to a well-prepared and well-financed buyer will reduce implementation risk. Accordingly, parties, including the proposed buyer, should stand ready to explain how their proposal addresses and minimises these risks, to reach an expedited settlement.

Timing concerns and related decisions

Settlement negotiations take time, and the search for an acceptable divestiture buyer often takes longer than the parties anticipate. Parties must decide, therefore, how soon to engage with staff. It is generally better to begin discussions as soon as possible, but serious discussions cannot proceed before the agency has determined where the competitive problems lie. Parties should not attempt to reach a quick settlement in one market in the hope that staff do not identify a competitive problem in another.[33] If an additional market problem is identified late in discussions, the staff will insist that it be remedied along with the previously identified problems. That is likely to delay reaching an agreement. A complete settlement is therefore most likely to happen sooner if the parties engage with the staff as soon as there is agreement on the markets that need to be addressed. The parties must also fully understand their own goals when entering negotiations. Whether deal timing, the scope of any required divestitures, or other factors are most important, parties should be clear about what they are trying to achieve. They must understand how their positions may conflict with the agency’s goals and cause delay.

Finally, parties will need to decide what they will and will not continue to debate. Merging parties often disagree with staff on some or even all markets. In matters involving multiple products, further investigation may lead staff to drop markets from their concern, and the parties may continue to urge staff to drop others. At some point, however, it will become clear that the parties and staff may have to ‘agree to disagree’ to reach a settlement.[34]

It is more common that merging parties are eager to settle and close their deal. Factors that drive the parties’ timing concerns can include financing arrangements (and expiring lending commitments), any required shareholder votes, deal termination contract provisions, seasonality in certain markets, and sometimes the presence of competing interest for the firm being acquired. Most importantly, the parties should be planning their work backwards from any critical dates, with a full understanding of what the agency’s staff need to do, what issues are being addressed and how the interests of other parties (including potential buyers for divested assets) will affect the process.

Not all deadlines are equally important, however. In particular, staff are likely to give more weight to third-party obligations and commitments than to simple wishes to close by a particular date. For example, the parties may have a general desire to close their merger by the end of a particular month, or before the start of a period of high demand.[35] These dates are important to the parties, but they are probably less immutable than the end of lender financing (when interest costs may need to be renegotiated). The parties should be aware of all their timing concerns and plan accordingly.

Further, the parties should not assume that the staff will know how any third- party timing drives the process. The parties must alert staff early to those critical timing issues. Waiting until late in the process to alert staff that ‘financing will run out in three weeks’ will almost always be counterproductive. The staff will not shortcut their work to allow the parties to meet a critical date that should have been revealed much sooner.

Parties should also be prepared to document their timing concerns, especially if they are asking the staff and decision makers to expedite internal processes. They should produce documents showing, inter alia, where the financing provisions contain terminations, and how a jurisdiction’s corporate and securities laws require action by a certain date. Staff may nevertheless question how firm a deal deadline is. Although contractual deadlines may give one of the parties the opportunity to abandon the deal, both parties often are committed to closing. Staff will not ignore these arguments, but none of them can be assumed to be dispositive.[36] Parties must also recognise that continuing to discuss the antitrust merits with the staff to try to carve markets out of the case, or suggesting that they may not settle at all, forces the staff to continue their work towards a possible court challenge. Those efforts will take time away from the staff ’s work to consider the remedy, review proposed buyers and draft the settlement papers.[37] As a practical matter, staff cannot simultaneously focus fully on the underlying case (and, especially, prepare for a court challenge) and negotiate a settlement. Preparing for court will be staff ’s priority.

Timing for a merger subject to the Hart-Scott-Rodino (HSR) Act is often covered by a timing agreement[38] between the parties and the agency’s staff. Parties agree not to certify compliance with the second request without giving advance notice to staff. These agreements allow all parties to focus on settlement discussions and other aspects of the investigation, and not immediately on a possible court challenge. If the parties either certify their compliance or announce their ending of the timing agreement, however, staff will very likely stop discussing settlement and turn their full attention to preparing the case for a court challenge. Staff will not jeopardise their litigation position by diverting trial preparation resources to settlement discussions as the deadline for filing their complaint approaches.

The particular details about the proposed remedy can affect the timing of settlement – the assets proposed for divestiture can affect both the likely buyers and the time needed for review. For example, it is generally easier, and probably quicker, to be prepared to divest an entire business that contains the overlap products than it is to divest a selected group of assets (a carve-out). However, parties sometimes prefer to divest a smaller set of assets used only for the markets at issue. Both US agencies, if they are amenable to the proposal, will almost certainly require an upfront buyer for those assets. Selection of that buyer and staff’s review will take longer than would a review of a ‘going concern’ divestiture.[39] In addition, the particular asset package may be acceptable only in the hands of a very few approvable buyers. Parties need to understand the trade-off between the divestiture proposal and the time needed to review it.[40]

The agencies generally do not have a preference for whether the parties divest the acquirer’s assets (A-side) or the target’s (B-side), but they generally reject divestitures of a mixture of assets from each party. In most cases the parties prefer to divest the smaller of the overlap products. But staff are likely to resist a divestiture that raises risks about the package, the proposed buyer or implementation of the remedy if the alternative divestiture can be ‘clean’. That trade-off raises many issues beyond timing alone, but the parties should understand that straight- forward remedies can be resolved, documented and completed more quickly.

Other agencies do not require upfront buyers as frequently as the US agencies do. The DOJ and FTC often consult and coordinate their merger investigations with other international enforcers. Cases that involve cross-border markets and remedies will require parties to coordinate their own international efforts. These efforts may affect overall timing of reaching a settlement.[41]

Starting in 2021, the FTC began issuing ‘close at risk’ letters to parties as the HSR waiting period expired.[42] It is understandable that this announcement has created uncertainty for practitioners, but presumably any negotiations over a remedy should not be halted by issuance of a letter. That is, if parties are already discussing a remedy, they are unlikely to be closing their deals during that process.

Issues regarding divestiture buyers

The scope of divestiture – assets and related relationships – is often the most difficult aspect of a settlement. The parties’ preference to divest as little as possible will generally increase the ‘asset risk’. When the parties propose to divest less than a ‘stand-alone business’, the agencies will almost always insist on identifying that buyer, with a contract, before agreeing to settle – the ‘upfront buyer’. When the agency requires an upfront buyer, which will be all but certain in the US, it is precisely because the agency insists that the parties must support their particular divestiture proposal by showing that a buyer exists who stands ready to acquire the divestiture assets and is capable of successfully competing with them.[43]

The parties’ choice of a divestiture buyer will always raise basic issues that the staff must investigate. This section discusses what the parties must show when proposing an upfront buyer. The agency will require the same information and conduct the same analysis as it would for a divestiture after the remedy is final, but the dynamics of overall settlement discussions will raise additional issues.

Any proposed buyer must be able to take the divested assets and succeed with them, meeting the stated goal of ‘maintaining or restoring competition in the relevant market’. The parties, with the proposed buyer’s help, must therefore show that their proposal will meet that goal. That showing should address the three broad risks already discussed:

  • whether the proposed divestiture assets will give the proposed buyer what it needs to compete successfully;
  • whether the proposed buyer has the financial and management ability to take those assets and compete; and
  • whether the proposed buyer has a well-prepared plan for taking the assets and integrating them into its existing business operations.

The merging parties have the burden of showing that their proposal should be accepted[44] – this obligation covers all aspects of the showing, although some information will necessarily come directly from the proposed buyer.[45] The information needed to show that the assets are an acceptable package is fairly straightforward and will flow directly from the relevant market analysis of the investigation. The parties should keep in mind, however, that assets that are outside the precise antitrust market may need to be divested to create a viable business. These may include assets needed to provide critical inputs (speciality products); research and development assets; contractual relationships with suppliers, distributors or customers; and a sales force. The parties’ willingness to divest more – making a true ongoing business – will better assure that a proposed buyer will get all assets needed to succeed.[46]

The greatest focus will often be on the particular buyer’s own assets, business plans and financial wherewithal. The parties should have a good basic understanding of the proposed buyer, and they should be prepared to explain why they chose that buyer and why they believe it will succeed. Staff will then turn their attention to the proposed buyer itself and will probably request information that the merging parties themselves do not have. Review of the buyer will move more quickly if the parties have fully explained that process to the buyer and explained why the buyer will need to provide further information to the agency.[47]

The agency’s staff will examine three main areas of the buyer’s capability by reviewing documents and meeting with and interviewing the buyer’s most knowledgeable employees. The buyer will be expected to explain its own market position and relationship to the relevant markets in the case. For example, it may be involved in a related business or may be a competitor in a geographical market not implicated by the proposed merger. Staff will expect the buyer to explain its plans for acquiring the divested assets, integrating them into its own operations, expanding its business and becoming competitive with the parties.[48] Depending on the particular matter, those plans may need to address, for example, expanding production capacity at an existing plant (if acquiring particular manufacturing assets), or increasing and expanding the buyer’s existing sales force. Buyers often present their case by bringing the relevant personnel and presenting well-drafted plans to the agency staff during the course of one or several interview sessions.[49] The proposed buyer must also show that it has a well-capitalised financial plan: capital to make the divestiture purchase and to fund integration, and a will ingness to pursue expansion efforts over the time needed to become fully established. If the buyer is relying on third-party financing, it will need to provide documentation to show the terms of that financing, and how it would deal with any contingencies.

The proposed buyer may need to provide financial projections, including the assumptions used, to show its anticipated performance during the early years after divestiture. The details will depend on the industry, the assets and the buyer. The agency will conduct its own review of those arrangements and may raise detailed questions about financial projections and assumptions.[50] The agency staff may request any documentation that the proposed buyer used to obtain outside financing or high-level corporate authorisation for the purchase. This documentation should explain how the buyer sees its opportunity and risk, including how its position may change if the performance assumptions (sales, costs) do not bear out.

As with most issues involving merger review, the specific areas for analysis and the degree to which they are critical will vary with the case. The agency’s review will take time, and it is best to address these issues as soon as a potential buyer is identified. Questions that arise towards the end of the process will undoubtedly cause delay.

If the agencies are willing to allow a divestiture to occur after the settlement and after the merger is consummated, as may happen outside the US, the parties must show that there are approvable firms available to buy the divested assets.[51] The difference is in the level of review that the agency will undertake during settlement. For upfront buyers, agency staff will insist on seeing the final negotiated divestiture contracts, financing arrangements and business plans. For post-order divestitures, the agency will expect those documents and arrangements to be presented when the merged firm makes its request for agency approval of the proposed divestiture. The effort and time needed during settlement is greater for upfront buyers, but the parties will need to make some initial showing of likely interested and approv able buyers even for a post-order divestiture plan. That is to say, if the agency staff doubt that the buyers really exist, they will insist on an upfront buyer.[52]

A remedy requiring divestiture of a complete business is likely to require the parties to enter some interim arrangement to hold the to-be-divested business separate from the merged firm pending divestiture and to maintain their competitive vigour. The agencies have used hold separate and asset maintenance agreements and orders for many years, and the terms are similar from case to case. A review of the agencies’ public record will show the general approach. Parties should plan accordingly and should be prepared to establish an acceptable arrangement. The agencies will almost certainly require appointment of a third-party monitor, who will oversee the held separate arrangement, report to the agency, and otherwise help minimise any problems that may arise in the interim.[53] As with other terms, engaging early with the agency staff about the hold separate and any required monitor will help to avoid delay.[54]

Other standard provisions and party obligations

Most merger settlements contain several standard provisions with which the parties should become familiar. For divestitures that raise potentially difficult technical issues (such as the transfer of complex intellectual property), whether to an upfront buyer or in a later post-decree divestiture, the agency will probably require a transition services agreement between the merging parties and the buyer, to guarantee that the merged firm meets its obligations to ensure the buyer receives the needed information. Further, as noted in the FTC Merger Remedies Report, transfer of certain ‘back office’ functions from the parties to the buyer has at times been more difficult than anticipated.[55] Accordingly, the agency may require that transfer function to be recorded in an additional agreement between the parties and the buyer (it may be a part of any transition services agreement). Just as for hold separates, a monitor is likely to be required to oversee that process.[56]

Similarly, if the buyer will need an interim supply of a critical input while it completes its own alternative arrangements, the parties may need to negotiate and enter a supply agreement, which is likely to be overseen by the same monitor. The supply agreement will specify the terms of that obligation, including volumes, pricing and delivery details. This agreement will need to run long enough to allow the buyer to separate seamlessly from the parties, but not so long as to create a long-term dependency – generally 18 to 24 months, depending on the case.

The agencies’ final settlement documents also contain routine reporting and access provisions, [57] and examples of them all can be found by a simple review of any recent merger settlement.[58] Orders entered following litigation will contain many of the same terms, especially when divestiture is required.[59]

As discussed above, the FTC has returned to its former policy of routinely including prior approval provisions in its merger consents and has expanded their scope. Parties should understand that seeking prior approval from the FTC requires that they make a record to support such a request. The burden to support a prior approval request is the same as for a divestiture approval. Although the FTC does not have an absolute veto over prior approval requests, the FTC’s denial will be upheld by a court unless the denied party can show that the FTC’s decision was ‘arbitrary and capricious’, a high threshold to overcome.

Final timing and the agency’s schedule

The agencies have a general working rule for how much time is needed to review and approve the settlement before the underlying merger can proceed. At the FTC, the Bureau of Competition generally requires two weeks to review the final arrangements and the commissioners generally require two weeks to review the settlement. At the DOJ, time must be allowed for a final review by the Assistant Attorney General. These periods are often shortened for contingencies, but the parties should anticipate building in enough lead time to their discussions.

At the FTC, it is not necessary that the parties meet with commissioners or senior management in the Bureau of Competition, and the parties should discuss with staff whether they need to seek meetings before they arrange them. Senior leadership will already be aware of the matter (and will have approved the settlement before the agency staff reach final terms), and it is generally unnecessary to seek a meeting if the staff has not indicated one is needed. Similarly, unless a commissioner’s office has raised an issue it wants addressed or has identified other problems or concerns, there is no need to schedule those meetings. The staff will alert the parties if an issue arises that would be best dealt with at such a meeting. At the DOJ, parties should take their cue from the staff concerning the need to meet with the Antitrust Division’s leadership.

Parties’ obligations after settlement

After the settlement is complete and approved by the agency or filed with the court, the parties must remain attentive to their continuing obligations. The upfront divestiture should be completed expeditiously, supply deliveries should begin as scheduled, and technology transfers should be completed cooperatively. The parties should address any questions raised by the monitor as soon as they can. As with all remedy compliance, it is better to bring issues to the agency’s attention quickly so they can be resolved, and not allow small concerns to become major problems.[60] Ongoing communication by all parties with the agency staff is always advised.[61] The parties will need to file any required compliance reports on time, including a full description of their compliance with the remedy’s terms, and they should understand that continuing oversight of their compliance will be a regular part of the agency’s work during the relevant terms of the remedy.

Any doubt about the agencies’ requirement for full compliance with all order terms should be dispelled by noting the DOJ’s contempt fine in Novelis[62] and the FTC’s 2020 civil penalty settlement involving Alimentation Couche-Tard.[63] In July 2020, the FTC filed its civil penalty settlement against Couche-Tard, calling for US$3.5 million in civil penalties for Couche-Tard’s numerous violations of its 2018 consent order to divest 10 retail fuel stations in 10 markets in Minnesota and Wisconsin. In addition to failing to divest any of the 10 stations by the order’s deadline, Couche-Tard also failed to maintain one of the stations (which led to its closure) and failed to explain its efforts completely in its regular compliance reports to the FTC. The court complaint alleges 13 violations in all (divestiture failures for each of the 10 stations, violations of the order to maintain assets, and violations of the two separate reporting obligations under the divestiture order and the order to maintain assets). Although the divestiture delays were not particularly long – three months – the parties’ failure was not considered reasonable. At a maximum civil penalty of over US$43,000 per day (per retail station), the penalty could have been much higher. But Novelis and Alimentation Couche-Tard should remind firms that when they commit to settle a case, they commit to satisfy all their obligations.


Notes

[1] Daniel P Ducore is a former assistant director of the Compliance Division of the US Federal Trade Commission’s [FTC] Bureau of Competition.

[2] ‘Assistant Attorney General Jonathan Kanter Delivers Keynote at the University of Chicago Stigler Center’, Chicago, IL, Thursday, 21 April 2022, https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-delivers-keynote-university-chicago-stigler.

[3] ‘Assistant Attorney General Jonathan Kanter of the Antitrust Division Delivers Remarks to the New York State Bar Association Antitrust Section’, (virtual event, 1/24/22) https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-antitrust-division-delivers-remarks-new-york.

[4] Update from the FTC’s Bureau of Competition, Holly Vedova, Director, Bureau of Competition, Remarks at 12th Annual GCR Live: Law Leaders Global Conference, Miami, Florida, 3 February 2023, https://www.ftc.gov/news-events/news/speeches/remarks-holly-vedova-12th-annual-gcr-live-law-leaders-global-conference (footnotes omitted).

[5] ‘This guidance is now inactive and the manual has been withdrawn. The information here may be outdated and links may no longer function. Please contact mailto:[email protected] if you have any questions about the archive site.’ https://www.justice.gov/media/1146521/dl?inline. This chapter will refer to the withdrawn guidance for illustrative purposes.

[6] Request for Information on Merger Enforcement, 18 January 2022. https://www.regulations.gov/document/FTC-2022-0003-0001, question 8.

[7] ‘These Guidelines pertain only to the consideration of whether a merger or acquisition is illegal. The consideration of remedies appropriate for otherwise illegal mergers and acquisitions is beyond its scope. The Agencies review proposals to revise a merger in order to alleviate competitive concerns consistent with applicable law regarding remedies.’ Draft US Department of Justice and Federal Trade Commission Merger Guidelines, note 21. Available at https://www.ftc.gov/news-events/news/press-releases/2023/07/ftc-doj-seek-comment-draft-merger-guidelines.

[8] In re Illumina, Inc., et al., Decision and Order (2023) at 71 (footnote omitted). Docket sheet and link to order available at https://www.ftc.gov/legal-library/browse/cases-proceedings/201-0144-illumina-inc-grail-inc-matter. See also Illumina decision at 68 et seq.

[9] All public case settlement materials can be found at, https://www.justice.gov/atr/case/us-v-assa-abloy-et-al.

[10] ASSA ABLOY complaint, preamble. The Division’s objections were expanded further in the complaint. See Complaint at par. 80 et seq., concluding, ‘[t]he parties’ proposed divestitures would be insufficient even if a transfer of assets were executed flawlessly, but the complex carving out (and in some cases splitting) of manufacturing capacity, warehouses, personnel, intellectual property, supply chain relationships, and other resources is virtually guaranteed to be anything but flawless.’ Complaint par. 85.

[11] ASSA ABLOY Competitive Impact Statements, at 7 (emphasis added). Competitive Impact Statements are a legal requirement when the Antitrust Division files a settlement with a court; they generally explain the case and why the settlement resolution is in the public interest, in advance of the court’s decision whether to accept the settlement. It is unusual for such a statement to state that the Division does not believe the settlement solves the problem.

[12] For example, the now-withdrawn DOJ Merger Remedies Manual states, ‘Once the Division has determined that the merger is anticompetitive, the Division will insist on a remedy that resolves the competitive problem, irrespective of whether the transaction is horizontal or vertical. This assessment necessarily will be fact-intensive.’ DOJ Remedies Manual (withdrawn), at 3. And see FTC Bureau Director Vedova’s remarks noted earlier.

[13] See generally, FTC, The FTC’s Merger Remedies 2006–2012, available at https://www.ftc.gov/enforcement/merger-review (2017) (FTC Merger Remedies Report).

[14] ‘FTC Rescinds 1995 Policy Statement that Limited the Agency’s Ability to Deter Problematic Mergers', https://www.ftc.gov/news-events/press-releases/2021/07/ftc-rescinds-1995-policy-statement-limited-agencys-ability-deter. See the press release for links to supporting and dissenting statements from commissioners.

[15] Remarks of Chair Lina M Khan Regarding the Proposed Rescission of the 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions, 21 July 2021. https://www.ftc.gov/legal-library/browse/cases-proceedings/public-statements/remarks-chair-lina-m-khan-regarding-proposed-rescission-1995-policy-statement-concerning-prior.

[16] One early case, In Re ARKO Corp, et al., applied a 10-year prior approval requirement only to the areas around the five retail gasoline stations that were divested. See https://www.ftc.gov/legal-library/browse/cases-proceedings/211-0187-arkogpm-investments-matter for all the case materials, specifically the final order at par. II.C. The divestiture ‘buyer,’ Corrigan, was not covered by any re-sale prior approval provision.

[17] ‘Statement of the Commission on the Use of Prior Approval Provisions in Merger Orders’, October 15, 2021, (Prior Approval Policy Statement’) available at https://www.ftc.gov/legal-library/browse/statement-commission-use-prior-approval-provisions-merger-orders.

[18] See the FTC’s order in its ‘farm store’ merger, In re Tractor Supply Co., et al., available at https://www.ftc.gov/legal-library/browse/cases-proceedings/211-0083-tractor-supply-companyorscheln-farm-home-llc-matter. In that case, the two divestiture buyers are prohibited from selling, without prior approval, any farm store acquired in the divestiture to any person, for three years, and for a remaining seven years are prohibited from selling to any other farm store operator within 60 miles of an acquired divestiture store.

[19] In a case predating the new policy, In re Dollar Tree, et al., available at https://www.ftc.gov/legal-library/browse/cases-proceedings/141-0207-dollar-tree-incfamily-dollar-stores-inc-matter, Sycamore Partners, a private equity firm, agreed in the consent agreement to be bound in the order to a prohibition for three years against selling any of the acquired dollar stores back to respondents, or all or substantially all the acquired stores to any person, without the FTC’s prior approval. Order at par. VI.

[20] Prior Approval Policy Statement. For historical reference, when Coca Cola attempted to acquire Dr Pepper in the early 1990s, the FTC obtained an injunction blocking the deal. Coca Cola thereupon abandoned the acquisition, but the FTC continued its administrative litigation and issued an order imposing a prior approval obligation. In re The Coca-Cola Co., 117 F.T.C. 795 (1994). When PepsiCo abandoned its contemporaneous effort to acquire SevenUp without forcing litigation, however, the FTC did not pursue such a remedy.

[21] See, e.g., In re JAB Consumer Partners SCASICAR et al., available at https://www.ftc.gov/legal-library/browse/cases-proceedings/211-0174-jab-consumer-partnersvipwethos-veterinary-health-matter, decision and order at par. X. The order also imposes a prior notice provision for any acquisition anywhere in the United States, if the acquisition is not reported under the Hart-Scott-Rodino Act.

[22] The Division has never required a blanket prior approval requirement of merger defendants; rather, the Division in past consents has used what it calls a ‘reacquisition ban,’ which covers only a defendant’s reacquisition of what it had divested. A defendant’s future acquisition of other businesses in the complaint market have not been subject to the decree.

[23] Proposed final judgment available at https://www.justice.gov/atr/case/us-v-assa-abloy-et-al.

[24] Prior to 1995, the FTC and Antitrust Division took different approaches to this issue, and the landscape seems to have returned to that time. Most other enforcers have not routinely used prior approval provisions in their merger settlements. Canada’s model consent template imposes a 10-year prior approval covering the divested assets and a two-year prior notice provision for other acquisitions in the markets. Mergers Consent Agreement Template (2016) at part XI., available at https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/publications/competition-bureau-mergers-consent-agreement-template.

[25] ‘Any remedy must be based on sound legal and economic principles and be related to the identified competitive harm.’ DOJ Merger Remedies Manual (withdrawn), at 2.

[26] As a former Assistant Attorney General noted, ‘[D]ecrees have become so common that one might forget they arise from a conclusion that a transaction was illegal under Section 7 of the Clayton Act. The complaints brought alongside such challenges should not be ignored, however – they reflect a conclusion by the Antitrust Division that a transaction broke the law.’ Remarks of Assistant Attorney General Makan Delrahim Delivered at the New York State Bar Association, 25 January 2018. Every US settlement is accompanied by a complaint that sets out the specific allegations of illegality – the product and geographic markets and the alleged competitive harm. Canada’s Competition Bureau, similarly, will register its negotiated order with the Competition Tribunal. EU practice differs, however: if the Commission accepts a negotiated settlement, it will take the form of ‘commitments’ in return for which the Commission will not oppose the tie-up. See EC/DGComp: ‘Merger Procedures/Remedies’ Available at https://competition-policy.ec.europa.eu/mergers/procedures_en#the-final-decision. And see also, the UK’s Competition Markets Authority guidance ‘Merger Remedies’ at https://www.gov.uk/government/publications/merger-remedies for a detailed explanation of procedures.

[27] At the FTC, the Bureau of Competition’s Compliance Division will be closely involved in any discussions. Compliance Division attorneys will become part of the investigating team as soon as a settlement appears possible. At the DOJ, the investigating staff will coordinate its settlement work through the office of the Director of Civil Enforcement.

[28] See, e.g., the FTC’s Merger Remedies Report. The FTC has published other guides, available at www.ftc.gov/enforcement/merger-review (‘Negotiating Merger Remedies’ and ‘FAQs on Remedies’). Clearly, and especially for horizontal mergers, a structural remedy – divestiture – will be required. See also, International Competition Network (ICN) Merger Working Group, Merger Remedies Guide (2016), at Section 3.2.1, ‘Competition authorities generally prefer structural relief in the form of a divestiture to remedy the anticompetitive effects of mergers, particularly horizontal mergers.’ Available at https://www.internationalcompetitionnetwork.org/portfolio/merger-remedies-guide/. Exactly how the parties will divest the complete overlap is discussed later.

[29] Scale and scope economies may require a divestiture of more than simply the overlap products or services.

[30] The FTC’s Merger Remedies Report noted that all the divestitures of ‘ongoing businesses’ succeeded, whereas some of the less-than-all divestitures failed – even when divested to upfront buyers. Understanding how the staff sees entry barriers will also guide this analysis.

[31] Parties should cooperate fully with staff’s requests for information if they expect negotiations to be successful.

[32] See, e.g., ICN Merger Remedies Guide at Section 2.3.iv.

[33] See DOJ (withdrawn) Remedies Guide, at 1. ‘[E]ven though a party may be willing to settle early in an investigation, the Division must have sufficient information to be satisfied that there is a sound basis for believing that a violation would otherwise occur before agreeing to any settlement.’ There may be an increasing belief in the US that drawn-out settlement negotiations themselves cause competitive harm, and so the agencies should instead reject discussions and seek to block the deal. As noted above, the FTC’s 2022 Request for Information regarding merger guidelines expressly raised a concern about delay. RFI 1/189/2022 on merger guidelines, Question 8, available at https://www.regulations.gov/document/FTC-2022-0003-0001. Although the draft joint DOJ-FTC Merger Guidelines declined to explore any issues about remedies, the agencies will not have unlimited patience if parties fail to move quickly.

[34] Parties may also consider ways to resolve major issues short of a trial. In 2020, the DOJ used binding arbitration for the first time to resolve a critical issue in a merger challenge. See, U.S. v. Novelis, Inc. and Aleris Corp.¸Case No. 1:19-cv-02033-CAB, (N.D. Ohio 2020).

[35] In some retail industries, peak demand is in the last quarter of the calendar year, and most firms want to avoid major transition efforts and store conversions while shoppers are filling their stores. Similarly, some industries have regular contracting cycles, and the agencies and parties both will likely want to avoid a disruptive business transfer during that peak period.

[36] Staff will insist, in any event, that the buyer has the time needed to conduct its own due diligence review.

[37] For a general discussion of the different documents used to settle a matter at the FTC and DOJ, see ‘A Visitor’s Guide to Navigating US/EU Merger Remedies’, 12 Competition Law Internat’l No. 1, 85, April 2016, especially at 87–88.

[38] The FTC and DOJ have each published model timing agreements. See FTC, Bureau of Competition, available at https://www.ftc.gov/enforcement/merger-review, and Antitrust Division, https://www.justice.gov/atr/merger-review-process-initiative-model-pta-letter. (November 2018). Parties may propose a settlement late in an investigation, when staff are already preparing the case for court. They should be prepared at that point either to enter or extend a timing agreement. Where parties have certified their responses to the HSR ‘second request,’ they may agree not to move forward on the merger until they have given the agency advance notice, often 60 days or more.

[39] While staff conducts due diligence, they will expect the buyer to complete full due diligence as well. Parties can expedite that process by making sure the buyer has direct access to the documents and information needed to review the proposal. See FTC Merger Remedies Report at VII.C.1 (Implementing the Remedy, Due Diligence).

[40] In some cases, the divestiture may be workable only in the hands of a single buyer. If that buyer so realises, it may press the parties for a low divestiture price. The staff are unlikely to be sympathetic to the parties’ concerns that the proposed buyer is taking advantage of that situation, because they could decide to divest the other overlapping product if they choose.

[41] See DOJ (withdrawn) Remedies Guide at 19–20. A full discussion of this issue is beyond the scope of this chapter.

[42] See FTC Bureau of Competition ‘blog,’ 2021, ‘Adjusting merger review to deal with the surge in merger filings’, https://www.ftc.gov/news-events/blogs/competition-matters/2021/08/adjusting-merger-review-deal-surge-merger-filings. There the then acting Bureau Director said, ‘[f]or deals that we cannot fully investigate within the requisite timelines, we have begun to send standard form letters alerting companies that the FTC’s investigation remains open and reminding companies that the agency may subsequently determine that the deal was unlawful.’ Although such letters do not change the legal landscape (the US agencies may challenge consummated deals that have ‘cleared’ HSR timing), they create some uncertainty. It appears that DOJ has not issued such letters.

[43] The US agencies do not require the parties to make the opening proposal (unlike in the European Union and some other jurisdictions). As a practical matter, however, once the parties understand the staff’s concerns, they will be expected to offer a solution.

[44] For divestitures that occur after the remedy is final, the FTC’s Rules of Practice set out the procedure for the parties (the ‘respondents’ under the final order) to make an application for FTC approval. It is the parties’ case to make; if the FTC rejects an approval application, the parties may challenge that decision in federal court but must show that the FTC’s decision, based on the record made by the parties in their application, was ‘arbitrary or capricious.’ This standard of review makes clear that the respondents have the burden to show their application should be approved. See Dr Pepper/Seven Up Cos Inc v. FTC, 991 F.2d 859 (D.C. Cir. 1993). The DOJ conducts a similar substantive analysis; its decrees require the defendant’s proposals to satisfy the DOJ at its ‘sole discretion’.

[45] The agency staff will make clear that it does not want the parties to be privy to the buyer’s confidential financial business, and other plans and information, but the parties will need to make sure the buyer provides that information to the staff. See FTC Bureau of Competition staff, ‘A Guide for Respondents: What to Expect During the Divestiture Process’, June 2019, www.ftc.gov/system/files/attachments/merger-review/a_guide_for_respondents.pdf.

[46] See the settlement in the DOJ’s challenge to the merger of Bayer AG and Monsanto Co, www.justice.gov/atr/case/us-v-bayer-ag-and-monsanto-company (2018). That divestiture settlement included assets outside the alleged product markets, and broadly covered research and development assets, employees and contractual arrangements in the industry.

[47] This is generally not an issue. Yet, some smaller businesses do not always fully understand what the staff need, and the parties’ failure to prepare the buyer for the staff review may delay settlement.

[48] See FTC Bureau of Competition staff, ‘A Guide for Potential Buyers: What to Expect During the Divestiture Process’, June 2019, https://www.ftc.gov/enforcement/merger-review. The parties and buyer should recognise that it may not be enough to show that the buyer will succeed and be profitable. The agency is looking for a competitive remedy. That is, what is good for the buyer must also offer robust competition in the affected markets. Although circumstances are rare, the agencies have rejected proposed buyers who likely would have succeeded financially, but who would not have met the broad goals of relief – to restore or maintain the competition (in all affected markets) that the proposed merger would lessen. The divestiture must also not create new antitrust problems in any market. See West Texas Transmission LP v. Enron Corp et al., 1989-1 Trade Cases (CCH), Paragraphs 68,424 to 60,334 (W.D. Texas 1988), aff’d on other grounds 907 F.2d 1554 (5th Cir. 1990), cert denied 499 US 906 (1991).

[49] For example, presentations to the board of directors. The staff may also talk to major customers in the affected markets. Staff will be sensitive to the parties’ desire to keep the buyer’s identity confidential but, as a practical matter, it may become necessary for the parties to disclose the status of their negotiations so customers are aware.

[50] The staff may ask about the sensitivity of the buyer’s projections to changes in assumptions, such as sales projections and cost estimates. A projection that is closely dependent on those assumptions not varying may be more risky than one with a larger margin for error.

[51] Staff will reach out to these possible post-remedy buyers to gauge their interest and to learn if the remedy is insufficient for some reason. The parties’ general assurances that firms are interested will usually not be sufficient.

[52] The agencies generally require any post-remedy divestiture to be completed within four to six months from settlement.

[53] See, e.g., DOJ Merger Remedies Guide (withdrawn), at 26. The EC also routinely uses monitors, as do other agencies. The two US agencies have issued many decrees and orders providing for monitors. (DOJ’s recent ASSA ABLOY proposed judgment, at par. X., includes a monitor provision.) The terms of those agreements track the remedy’s requirements and are usually public, although the compensation schedule is confidential. Although monitors are formally appointed or named by the agency, the parties are encouraged to propose candidates, for several reasons. First, the parties may be best able to identify individuals (or firms) that have the precise industry experience needed to meet their obligations. Second, because of the necessary ongoing relationship between the monitor and the parties (as well as the agency), the parties’ identification of a candidate they believe can work well is more likely to lead to a problem-free process. The agency will fully review any proposed candidate, however, for both expertise and possible financial or other conflicts, and may request the parties to select an alternative. Once appointed, the monitor owes its duties to the agency’s remedy, not to the parties (who must pay the monitor), and the monitor will report formally to the agency regularly, and more often informally.

[54] The FTC and DOJ do not conduct a formal ‘market test’ of the divestiture proposal, unlike some other jurisdictions, most notably the European Commission [EC]. But the US agencies will (consistent with confidentiality restrictions) reach out to major customers (as noted earlier) and other knowledgeable parties to assess their views of a potential divestiture and buyer. The goal is the same as for the EC’s market test: to determine whether there are issues or problems that need to be considered before agreeing to the proposed remedy.

[55] FTC Merger Remedies Report, at VII.A.2. But note recent US statements showing unwillingness to accept complex remedies.

[56] For an FTC order requiring an upfront buyer, and containing an asset maintenance provision, see Becton, Dickinson and Co, https://www.ftc.gov/legal-library/browse/cases-proceedings/171-0140-becton-dickinson-company-cr-bard-inc-matter (2018). See also CRH plc, www.ftc.gov/enforcement/cases-proceedings/171-0230-c-4653/crh-plc (2018).

[57] See also Canada’s model settlement template, ‘Mergers Consent Agreement Template (2016), noted earlier.

[58] This discussion has been in the context of the most common settlement, made during the merger investigation itself and completed before the merger proceeds. Two other situations are possible in the US: (1) the merger has already occurred (likely because it was not subject to the Hart-Scott-Rodino Act), and (2) the agency is already in litigation with the parties. The procedures are different for mergers that have been consummated, but the substantive issues that the agency will address are the same. Timing issues may differ, because the parties have already completed their transaction, but the agencies will probably not allow the investigation to slow without real progress towards a remedy. Instead, the agency will move its investigation towards a challenge (an administrative trial at the FTC, or a district court complaint brought by the DOJ). In the case of administrative litigation at the FTC, certain ex parte rules prohibit unilateral communications between the FTC’s staff (complaint counsel) or the parties and the commissioners, but if a settlement is reached with staff, the matter will be removed from adjudication, at which point the staff and parties may communicate directly with commissioners (and commissioners’ own staff). Whether before the FTC or in federal court, settlement discussions can proceed during trial preparation, but the staff will not be distracted from trial preparation (including depositions), and they will require real progress towards settlement before agreeing to any delays. The parties are therefore best served if they conduct settlement discussions as they would in a pre-merger investigation, focusing on the merits and being mindful that a failure to settle will move the case closer to trial. Similarly, cases can be settled during litigation over a preliminary injunction. Timing limitations may be severe, but the substantive issues about what should be divested, and how and to whom, will be similar.

[59] See In Re Chicago Bridge & Iron, FTC Dkt. 9300, Final Order (2005) available at https://www.ftc.gov/legal-library/browse/cases-proceedings/0110015-chicago-bridge-iron-company-nv-chicago-bridge-iron-company-pitt-des-moines-inc-matter. In Chicago Bridge, the FTC challenged a consummated merger and ordered respondent to reorganise its business into two, under the scrutiny of a monitor, and divest one of the reorganised businesses.

[60] The Antitrust Division recently began including certain ‘fee shifting’ provisions in its decrees, requiring the defendant parties to bear the costs (including DOJ attorney fees and expert fees) of any prosecution of a decree violation.

[61] FTC Merger Remedies Report, VII.E. Failure to comply with the terms of a remedy, including the divestiture deadline, may subject the parties to financial penalties and other consequences. The FTC may seek civil penalties and other relief, pursuant to Section 5(l) of the FTC Act, 15 USC §45(l); the DOJ may seek contempt remedies from the court that issued the decree.

[62] See footnote 34.

[63] FTC v. Alimentation Couche-Tard, Inc., et al., Civ. No. 20-cv-01816 (D.D.C.). See Press Release, FTC, ‘Alimentation Couche-Tard Inc. and CrossAmerica Partners LP Agree to Pay $3.5 Million Civil Penalty to Settle FTC Allegations that they Violated 2018 Order’, 6 July 2020, and the court papers linked to that press release, at www.ftc.gov/news-events/press-releases/2020/07/alimentation-couche-tard-crossamerica-partners-agree-to-pay-civil-penalty.

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