A Practitioner’s Perspective on Negotiating Remedies

Remedies are a key part of the merger control planning process. Although it is up to the parties to propose and implement remedies, their exact form and scope are generally the subject matter of intense negotiations with competition authorities and sometimes between the parties to the transaction. Using several actual transactions as a reference, this chapter focuses on how best to conduct these negotiations from a practitioner’s perspective.

The best remedy planning starts early in a transaction, with deep client involvement. Identifying the most likely competition concerns, the transaction rationale and efficiencies may not be enough on their own because remedies may need to be broader than the actual competition concerns to pass muster. For example, only one product within a group of three may raise competition concerns, but the three products may share research and development resources, production facilities or a sales force. Thus, divesting that product alone may only enable a higher-cost competitor and, therefore, not sufficiently constrain the merged entity’s competitive behaviour. An appropriate remedy planning process must identify these kinds of issues and propose solutions, such as finding buyers that have other, similar products that might share the research and development and sales efforts, or divesting a broader group of products.

We consider the key aspects of a proper remedy strategy: (1) the remedy planning process; (2) trade-offs in the divestiture process; (3) conducting the sale process; and (4) when and how to approach the authorities. We then address some special issues that arise in multi-jurisdictional transactions.

The remedy planning process

Remedy planning involves (1) identifying the likely competition concerns, (2) identifying what remedies can address those issues given the antitrust authorities’ legal standards, the rationale for the transaction and its efficiencies, and (3) deciding what remedies to offer and when to do so, taking into account, if appropriate, the need to coordinate remedies across multiple jurisdictions. This process should always start as early as possible.

As discussed in detail in other chapters, the types of acceptable remedies will vary depending on the nature of the competition concerns – for example, horizontal versus vertical or conglomerate – and sometimes on the antitrust authority reviewing the transaction. In most cases, and particularly in horizontal mergers, only a structural remedy such as a divestiture will be acceptable. For example, the European Commission’s notice on remedies states that ‘[structural] commitments, such as the commitment to sell a business unit, are, as a rule, preferable’.² But not all divestitures are created alike; the authorities may also have a strong preference for the divestiture of a stand-alone business. For example, the US Department of Justice’s (DOJ) Merger Remedies Manual (now withdrawn) notes that ‘the Division has a preference for requiring the divestiture of an existing standalone business’.³ Similarly, during a recent keynote speech, Colin Raftery, senior director of mergers at the UK’s Competition and Markets Authority (CMA), emphasised that the CMA has rarely used behavioural remedies to fix harms caused by mergers.⁴

More recently, the current agency leadership in the US has cast doubt on the desirability of remedies altogether. Current head of the Antitrust Division of the DOJ Jonathan Kanter, for example, has stated that ‘I am concerned that merger remedies short of blocking a transaction too often miss the mark . . . 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.'⁵ To date, the DOJ has only entered a single formal consent decree – settling during the middle of a trial it was likely losing – and has litigated (unsuccessfully) a few proposed remedies.⁶,⁷ In an update, the Director of the FTC’s Bureau of Competition, Holly Vedova, signaled a posture closer to the DOJ, stating that the FTC ‘will no longer consider remedies where there is a heightened risk of failure’, clarifying that these include ‘proposals of less than standalone business units’.⁸

Practitioners should also be aware that novel theories of harm may affect the types of assets that need to be included in a divestiture package. If the relevant authority has identified competition concerns relating to innovation, for example – as is not uncommon in the European Commission’s recent practice – remedies must address those innovation concerns as well.

For example, in Abbott Laboratories/St Jude Medical,⁹ the European Commission raised concerns about vessel closure devices (VCDs) (which are used to close vessels after minimally invasive cardiovascular surgery) and transseptal sheaths used in electrophysiology procedures, which test the electrical activity of the heart to find the source of arrhythmia (abnormal heartbeat). As to the latter, the Commission was concerned that the combined firm would no longer have the incentive to launch Vado, a new transseptal sheath developed by a unit of Abbott to challenge St Jude Medical’s market-leading product. To resolve the Commission’s concerns, Abbott committed to divesting not only St Jude Medical’s global VCD business, but also the Abbott unit that developed Vado. This structure ensured that the purchaser of the divested business would continue developing Vado and would eventually put it on the market to compete with the merged entity.

In Dow/DuPont,¹⁰ the Phase II remedies consisted of divesting a significant portion of DuPont’s crop protection business and almost the entirety of DuPont’s research and development organisation to a single buyer to remove both the price effects and the innovation effects identified by the European Commission. Similarly, in Bayer/Monsanto,¹¹ the Commission required that the divested businesses include research and development organisations as well as Bayer’s glufosinate assets, important lines of research for non-selective herbicides, and a commitment to grant a global licence to BASF for current and pipeline products.¹²

In AbbVie/Allergan,¹³ the European Commission again relied on a theory of harm similar to the Dow/Dupont and Bayer/Monsanto cases, based on a potential reduction in innovation for treatments for inflammatory bowel diseases. The Commission was concerned that the transaction would lead AbbVie to discontinue the development of Allergan’s promising products. The acquisition was ultimately cleared subject to the divestment of Allergan’s pipeline product brazikumab, including all development, manufacturing and marketing rights required worldwide to pursue the drug’s development. Likewise, in Elanco Animal Health/Bayer Animal Health Division,¹⁴ the Commission requested that the parties divest current and pipeline products in relation to otitis, anticoccidials and parasiticides for pets in a number of countries in the European Economic Area and the United Kingdom, along with the required assets (i.e., licences, contracts, brands and the relevant studies and data). This remedy removed the overlaps between Elanco’s and Bayer’s animal health divisions and aimed to preserve innovation in those markets.

Such novel theories of harm relating to innovation are not confined to the European Union. In Illumina/GRAIL,¹⁵ for example, the US Federal Trade Commission (FTC) has blocked a transaction in a market that has yet to exist. GRAIL is developing multi-cancer early detection (MCED) tests that can screen for multiple types of cancer using DNA sequencing, and Illumina is described by the FTC as the dominant provider of DNA sequencing and is claimed to be the only one that is a viable option for these MCED tests in the United States.¹⁶ Although no alternative MCED tests are currently being commercialised, other companies are said to be developing similar MCED tests, which would also depend on Illumina for next-generation sequencing (NGS) as a critical input. The FTC claims that Illumina’s NGS platforms have no substitutes that GRAIL’s rivals could resort to, as ‘no other NGS platform has the cost, accuracy and throughput necessary for use in MCED tests’.¹⁷ Therefore, the FTC alleges that Illumina has the means of foreclosing or disadvantaging GRAIL’s rivals (e.g., by raising the prices for NGS instruments and consumables; denying technical assistance and other information required for the design of MCED tests; or refusing or denying the execution of licences needed for the in vitro diagnostic versions of the test). According to the FTC, post-transaction, Illumina will have an increased incentive to disadvantage the competitors of GRAIL and will ‘control the fate of every potential rival to GRAIL for the foreseeable future’. For these reasons, the FTC believes that the transaction may result in less innovation and competition (potentially increased prices and reduced choice and quality) in the US MCED test market, with competitors of GRAIL facing higher costs and seeing their development efforts hindered. The FTC alleges in its complaint that even if a viable substitute to Illumina entered the market, it would take years for MCED test developers to switch to another platform because they would have to reconfigure their tests and perhaps conduct new clinical trials. In these circumstances, the FTC was unwilling to accept a ‘behavioural’ remedy.¹⁸

Although antitrust authorities tend to be very sceptical of behavioural remedies,¹⁹ they do accept them in certain circumstances, particularly in vertical mergers. Imposing firewalls is one of the most common behavioural remedies whenever the primary competition concern is the misuse of competitively sensitive information. In ASL/Arianespace,²⁰ for example, where the concerns were about potential exchanges of sensitive information, the European Commission accepted firewalls and some other measures to restrict the mobility of employees between companies as well as an arbitration mechanism to settle any disputes. Practitioners should thus seriously consider whether behavioural remedies would be appropriate in any specific case. Non-discrimination provisions are also a typical remedy for concerns about the degradation of interoperability. In Qualcomm/NXP Semiconductors,²¹ for instance, the Commission accepted Qualcomm’s commitments to provide the same level of interoperability between its own baseband chipset and the products it acquired from NXP with the corresponding products of other companies. In that same case, the Commission also remedied certain concerns regarding intellectual property rights by requiring Qualcomm to offer licences to certain technologies on certain terms and, more controversially, to not acquire certain patents in the future.²²

The use of arbitration to neutralise potential increases in bargaining leverage has gained some notoriety for its use in two vertical transactions in the US broadcasting industry. A concern that can arise in vertical transactions is that the new entity has less to lose if negotiations between its upstream division and the rivals of its downstream division break down, since its own downstream division might benefit from the reduction in its rivals’ quality. In both the Comcast/NBCU and the AT&T/Time Warner transactions, the parties proposed ‘baseball-style’ arbitration as a dispute resolution mechanism. Owing its name to Major League Baseball salary negotiations between players and managers, baseball-style arbitration refers to a process in which both sides privately submit their final offers to a third-party arbitrator, who chooses between them. This incentivises each side to not make an extreme offer as the arbitrator will pick the more reasonable side, and it reduces the need for the arbitrator to act as a quasi-price regulator, since the tribunal need only pick between two prices. More generally, the availability of the arbitration prevents the new entity from making a credible threat to withhold the content. In Comcast/NBCU,²³ a merger between a content creator and a cable television company, the parties agreed to allow other distributors of NBCU’s highly valuable broadcast content to submit to arbitration if the parties could not reach a renewal agreement, with access to content continuing during the proceedings. The same remedy was pre-emptively offered as a solution in the AT&T/Time Warner case, another vertical combination of a content creator and television distributor. This time, the DOJ rejected the remedy, arguing that the reluctance of other distributors to invoke the arbitration process had allowed Comcast to secure higher rates and so the remedy had not been sufficient.²⁴ However, after the DOJ sued to block the transaction, the court rejected the challenge, referencing Comcast/NBCU and finding that the no-blackout arbitration agreements are likely to prevent unbalanced leverage for the merged party in negotiations with content distributors.²⁵ With the increased focus of some agencies on vertical mergers recently, these two cases and the rationale behind their remedies may serve as guidelines for future challenges or negotiations with agency concerns about vertical integration,²⁶ and show that the proposed remedy can be important in pre-empting agency challenges. Illumina/GRAIL is another example of a vertical merger that was subject to an FTC Complaint. In this case, however, an administrative law judge unprecedentedly dismissed the antitrust charges brought by the FTC after concluding that an Open Offer made by Illumina effectively constrained the company from acting on its ability and incentive to harm GRAIL’s alleged rivals.²⁷

Behavioural remedies may also be paired with a structural remedy in certain circumstances to enable the divestment of a narrower package of assets. For example, in HeidelbergCement/Italcementi,²⁸ the European Commission approved the concentration after the parties agreed to divest the entire business of Italcementi in Belgium to remove the immediate overlap between the parties, but the Commission still had concerns that the long-term supply of limestone in the region would be insufficient. The parties addressed this concern using a novel incentive scheme in the sale agreement to reassure the Commission that the purchaser would be interested in opening a new quarry, thus boosting limestone supply in the region.

Another important issue to bear in mind when designing and negotiating the scope of the divestiture package is the parties’ internal business documents. If the parties have debated internally about the scope of assets that they might be willing to divest in a non-privileged context, these documents will often be caught up in the review. The combination of the European Commission’s narrow view of the scope of legal professional privilege – which it asserts excludes both in-house counsel and non-EU-qualified lawyers in many circumstances²⁹ – and the Commission’s increasing breadth of document requests may allow the Commission to access internal documents that give hints about or simply spell out what assets or businesses the companies would be willing to divest. Practitioners should thus take this into account so as to ensure that they are not caught off guard in negotiating remedies.

Finally, the remedy package’s design should account for how it will affect the transaction’s rationale or efficiencies and discuss this openly with the relevant authorities as appropriate.

As discussed in more detail below, it is also important to be aware of the possibility of inter-agency cooperation in cases where the transaction is being reviewed in parallel in multiple jurisdictions.

Trade-offs in building the divestiture package

The remedy planning process will inevitably also involve assessing and making trade-offs. Clients who want to expedite the review process may have to offer more far-reaching remedies. On the other hand, clients who want to limit the scope of the divestiture package to the minimum necessary may have to be more flexible in terms of timing.

The divestiture package presented in HeidelbergCement/Italcementi, for example, may be considered far-reaching. By agreeing to divest the entire business of Italcementi in Belgium, the parties removed almost the entire overlap between the parties’ activities in the areas of concern for the European Commission. That allowed the Commission to conclude its review, subject to some minor modifications of the remedies in Phase I. Similarly, EVP Vestager recognised that the Commission was able to approve the Veolia/Suez merger³⁰ (also in Phase I), ‘thanks to the very comprehensive commitments put forward by Veolia’.³¹ In this case, however, in spite of the comprehensive remedy package offered in the EU, the CMA required Veolia to sell three businesses that made up almost all of the overlap between Veolia and Suez’s operations in the UK.

A divestiture package offered to remedy concerns early in the investigation (e.g., in Phase I in Europe, before complying with a Second Request in the United States) must be clear-cut because the authority may not have had the benefit of a full investigation to understand the exact contours of the competition concerns. Similarly, if the parties are seeking a post-closing divestiture, then a more comprehensive business may need to be divested: the authority will have to satisfy itself that the assets can stand on their own and that there will be a sufficient number of suitable purchasers, as it will not have the ability to examine the buyers’ ability to integrate the package into their existing assets in detail ahead of closing. Thus, practitioners should assess, case by case, whether it is worth it for the parties, considering the strategic rationale of the transaction and their timing goals, to risk offering a divestiture package that may turn out to go beyond what would be necessary to remove the competition concerns at stake but make sure that clearance is obtained in as short a time as possible.

One of the most significant risks with taking this route is, of course, that it might not work out as planned. If the broad package that the parties have offered does not prove broad enough in the eyes of third parties or the authority, the parties may still end up having to endure a lengthy investigation. Yet the parties will have already signalled to the authority their willingness to agree to the broad divestiture package. There may thus be circumstances in which the parties might have succeeded in offering a narrower package had they planned in the first instance for a lengthy negotiation or investigation, but will end up with the broad package because they revealed their negotiating position too early in the process. Thus, where timing is an overriding goal, practitioners may consider advising clients to err on the side of offering a clear-cut viable stand-alone business. There are instances, of course, where antitrust authorities will not insist on the broader package even though the willingness to offer it has already been revealed, but it is nonetheless not helpful to the parties’ negotiating position.

By contrast, the more time the authority has to understand the exact competitive issues and study how the proposed package would interact with a proposed buyer’s existing assets, the more likely a narrower package is likely to be accepted.

Another trade-off that practitioners must consider is the scope of a divestiture and the level of monitoring. For example, the parties might prefer a behavioural remedy to preserve the synergies of the deal, but they will almost certainly need to (1) live with enduring ongoing compliance, (2) report to a monitoring trustee who has significant power to access their records, interview their employees and show up to internal meetings, and potentially (3) be subject to burdensome investigations or binding arbitration in the event of disputes. In ASL/Arianespace, the behavioural remedies described above were offered for a duration of 25 years. These remedies will be monitored by a trustee ‘with extensive powers to verify that the firewalls and employment measures [were] implemented, including having full access to the parties’ documents, personnel and facilities’³² throughout the 25 years. The monitoring trustee is also entitled to ‘request the expertise of [the European Space Agency] to assess the compliance of the parties with the commitments’.³³ In Google/Fitbit, the duration of all the different elements of the commitments was set at 10 years, but the European Commission reserved its right to extend the duration of the commitment relating to advertisements by up to an additional 10 years because of Google’s entrenched position in the market for online advertisement.³⁴ In Broadcom Limited/Brocade Communications Systems,³⁵ Brocade agreed to establish a firewall to remedy the concerns of the FTC relating to Broadcom’s access, as a supplier of Cisco Systems Inc, to sensitive information about Cisco – Brocade’s major competitor. To ensure compliance with this behavioural remedy, the FTC appointed a monitor for a period of five years, extendable by up to five more years. The monitor agreement that was entered into conferred on the monitor ‘all the rights and powers necessary to permit the monitor to monitor the respondents’ compliance with the terms of [the Federal Trade Commission’s] order’.³⁶ In particular, the monitor would have ‘full and complete access to respondents’ personnel, books, documents, records kept in the ordinary course of business, facilities and technical information, and such other relevant information as the monitor may reasonably request, related to respondents’ compliance with its obligations under [the] order’.³⁷ Court oversight might also occur, as in the private arbitration remedy in Comcast/NBCU, discussed above, in which a US federal court judge ordered additional requirements, including a report heavily documenting any arbitration proceedings, and annual hearings in court to discuss the report.³⁸

In Teva/Allergan Generics,³⁹ in addition to a divestiture package, the parties offered some behavioural remedies to address the European Commission’s concerns regarding out-licensing. In particular, the parties agreed that Medis (a third-party supplier of Allergan) would maintain out-licensing agreements with Aurobindo, the proposed purchaser for one of the divested businesses, on the same terms as before the concentration for four years, a period that was deemed sufficient for Aurobindo to be able to start manufacturing the molecules concerned. Throughout this period, Aurobindo would have the right to send reasoned requests to a monitoring trustee should it believe that the parties were not complying with the remedy they had offered. Binding arbitration has become relatively common as a dispute resolution mechanism to solve disputes relating to the implementation of commitments in the European Union. In Connect Airways/Flybe,⁴⁰ the commitment by Connect Airways to release slot pairs to prospective new entrants at the Amsterdam Schiphol and Paris Charles de Gaulle airports included the possibility for prospective new entrants to trigger a fast-track arbitration procedure. If Connect Airways fails to comply with the commitments, a prospective new entrant may force Connect Airways to ‘resolve their differences of opinions through consultation and cooperation’. Should the dispute persist, the complaining party may bring its claim before the International Chamber of Commerce and the arbitral tribunal’s decision shall be binding on Connect Airways. Interestingly, the European Commission has retained the right to be involved in the proceedings. Similarly, in Vodafone Italia/TIM/INWIT JV, the parties agreed to solve their dispute through mediation as a first alternative, and to undergo arbitration should the former option be insufficient to settle their dispute.⁴¹

Similarly, divestitures of a narrow package of assets may involve lengthy transition services or supply agreements that are subject to similar types of monitoring. By contrast, divestitures of a broad package of assets typically involve only a brief period of transition services, after which the client will be free from further government involvement. Practitioners should thus make sure that clients have considered these ongoing costs before attempting to minimise the remedy package for its own sake.

Not only do some remedies require some degree of continuing monitoring, but close adherence to the terms of the agreements forged with the agency may be essential to prevent extensions or imposition of more onerous conditions or even fines. In the United States, almost 10 years after the behavioural remedies in Live Nation/Ticketmaster⁴² were implemented, they were extended for another five and a half years when the DOJ announced that the merged company had repeatedly violated the original 2010 consent decree. The behavioural remedies in the original and modified versions of the consent decree prohibited the merged ticketing company from retaliating against or threatening concert venues away from using other ticketing companies. Modifications to the consent decree included clarifications as to what behaviour was prohibited, an automatic penalty of US$1 million for each violation, and increased monitoring by ordering the appointment of both an independent monitor and an internal antitrust compliance officer.⁴³

Even if the agency is satisfied with the commitments offered, they may still not be immune to challenge from outside the agency. This should remind practitioners that they are not just negotiating with buyers and the agency, but that they may need to respond to the courts and, ultimately, the public as well. In the United States, for example, under the Tunney Act, the DOJ must seek court approval for remedies and, in the context of these proceedings, third parties can comment and urge the court to require modifications or reject the remedy entirely. This occurred in Comcast/NBCU, in which the judge modified the consent decree to provide for additional oversight over the arbitration process.⁴⁴ The CVS/Aetna merger combined the retail pharmacy and benefit management service of CVS with the health insurance and drug plan provider services of Aetna.⁴⁵ The parties agreed to divestitures that eliminated horizontal concerns about their overlapping prescription drug plan services, but ultimately were able to persuade the DOJ that vertical concerns with a health insurance company using CVS’s retail pharmacy and benefit management services were not likely to lessen competition. However, when the DOJ submitted the proposed settlement for federal court approval, the court took the unlikely step of ordering a two-day evidentiary hearing. Stating that such a large healthcare merger implicated vast public policy concerns, the court heard from witnesses in third-party organisations who argued against both the merger and the proposed remedies. After the hearing, the court was ultimately satisfied with the remedy but not before admonishing the DOJ for advocating a much narrower court review.⁴⁶ The converse approach is possible too: when an agency is not willing to accept remedies, litigation may result in the courts being more favourable to the parties’ remedy proposal.⁴⁷

Also in the United States, clearance from the federal agency does not mean that individual states will automatically follow suit. A coalition of 14 states’ attorneys general led the charge in New York federal court against the US$56 billion merger between the telecommunications companies T-Mobile and Sprint, even after it had received approval from the DOJ and the US Federal Communications Commission (FCC).⁴⁸ As part of the deal, Sprint would divest its prepaid wireless businesses and some other assets to Dish, a satellite provider attempting to start its own nationwide mobile network. On top of a statement of interest filed by the DOJ and FCC supporting the merging parties in the lawsuit, strong arguments about synergies, dynamics in the modern telecommunications industry, and measures supporting that Dish could fill the hole left by Sprint in the industry carried the day for the merging parties, even in the face of strong criticism from the state enforcers. The DOJ Antitrust leader and the FCC Commissioner noted that suits contrary to their own approval could be problematic in the future, when nationwide mergers can be challenged from more granular, regional entities. This example should thus remind practitioners to be appraised of any regional fallout from nationwide deals, and adjust as necessary if strategy or timing is affected.

Finally, in many jurisdictions, private parties can challenge the transaction directly. For example, in Steves and Sons, Inc v. Jeld-Wen, Inc,⁴⁹ a US district court created a historic first in private antitrust litigation when it ordered a divestiture over six years after the merger was approved by the DOJ.⁵⁰ Jeld-Wen, a door manufacturer and component supplier, acquired CMI, one of only three ‘doorskin’ manufacturers in 2012. In 2014, when the only other remaining producer of doorskins in the relevant market announced it would stop selling to independent door manufacturers such as Steves and Sons, these manufacturers were left with Jeld-Wen as the only supplier, and Steves and Sons eventually accused Jeld-Wen of various actions monopolising the doorskin market in their 2016 suit under the US Clayton Act. The Clayton Act allows private individuals to seek relief for violations of the antitrust laws, including equitable relief against anticompetitive mergers. In 2018, a jury awarded US$12,151,873 in damages for past antitrust injury (later amended to US$36,455,619) and US$46,480,581 for future lost profits to Steves and Sons. Steves and Sons then sought a court order for a divestiture of the most significant asset Jeld-Wen acquired in the 2012 merger: a manufacturing plant in Towanda, Pennsylvania. In October 2018, more than six years after the DOJ closed its initial investigation in the Jeld-Wen/CMI merger, the court ordered the divestiture of the Pennsylvania plant.

Similarly, the European Commission’s commitment decisions are not immune from challenge before the courts. Pursuant to Article 263 of the Treaty on the Functioning of the European Union, a natural or legal person may institute proceedings against a decision addressed to another person only if that decision is of direct and individual concern to the former. Active participation in the administrative procedure is a factor often taken into account by the EU courts to establish individual concern to third parties seeking the annulment of a merger clearance decision.⁵¹ In 2020, Deutsche Telekom AG,⁵² NetCologne⁵³ and Tele Columbus⁵⁴ sought annulment before the General Court of the Commission’s merger clearance in Vodafone/Certain Liberty Global Assets,⁵⁵ claiming that the Commission committed manifest errors in assessments with regard to the competitive effects of the transaction. In their respective actions for annulment: (1) Deutsche Telekom AG contended that the commitments accepted failed to satisfy the conditions set out in the remedies notice and that the transaction still led to a significant impediment of competition on the wholesale television markets; (2) NetCologne criticised the Commission’s motivation for approving a commitment from Vodafone to grant Telefónica Deutschland wholesale access to its cable network and argued that the Commission breached its duty of care when evaluating this remedy; and (3) Tele Columbus argued that the set of commitments was unsuitable to resolve the competition concerns arising from the transaction. Thus, practitioners should not only make clients aware of the continuing monitoring that may be required by an agency, but they should also warn clients that challenges may arise from other third parties.

Dealing with buyers: the three-way negotiation process

The parties must not only decide on a divestiture package but also plan and prepare for the sale process for the divested business. This sale process is subject to a peculiar dynamic – it is not a standard two-way negotiation between the seller of the divested business and a potential buyer. In the context of a divestment remedy, the negotiation process also includes the authority.

The parties to the deal are free to agree on its terms and structure. However, the authority will intervene in the negotiation process to make sure that the buyer receives everything it may need to operate the divested business. In some recent instances relating to behavioural remedies, however, the European Commission has allowed the merging parties to negotiate a potential commitment with the remedy taker through arm’s-length negotiations. It remains to be seen whether this will become a more widespread trend. The FTC explains that:

if the proposed package of assets does not comprise a separate business unit that has operated autonomously in the past, the staff is unlikely to recommend that the Commission accept such a proposal until the parties show that the package includes all necessary components, or that those components are otherwise available to a prospective buyer.⁵⁶

Negotiation efforts that succeed in striking a tough deal with the divestiture buyer may thus be unwound if they do not survive scrutiny from the authority. Particularly as the authority’s review of a buyer progresses, the seller will lose bargaining power with regard to the buyer because the seller would encounter significant timing difficulties in finding an alternative buyer.

Because of this dynamic, the sale process, as with the other elements of the remedy planning process, should start as early as possible. In some circumstances, the sale process can commence even before the divestiture package has been completely defined. For example, if remedies involve the divestment of a cement plant and most of its terminal network, it may be possible to start the sale process once the parties have identified the cement plant that will be divested, even if the inclusion of one terminal or another may still be in doubt. The pending issues on the scope of the divestiture package can be negotiated with a smaller set of potential buyers at a later stage of the bidding process. Practitioners can apply similar techniques when the assets at issue are not likely to have a significant effect on key variables of negotiation, such as price.

In Abbott Laboratories/St Jude Medical, Terumo, a Japanese company active in the manufacture and supply of cardiovascular devices, was identified by the parties as a suitable purchaser for the divested business. Given the tight deadlines, the parties had looked for a purchaser even before proposing the divestment to the European Commission. During the review of the case, Abbott, St Jude Medical and Terumo preliminarily agreed on the terms under which Terumo would purchase the divested businesses so as to avoid any undue delays in closing the transaction following the approval of Terumo as a purchaser by the Commission, approximately one month after the conditional clearance decision.

An early start is not without risk, however. For example, information about the sale process may be leaked. Initiating the sale process when the parties are still trying to convince the authority that no remedies are necessary, for example, may suggest that those arguments lack credibility.

If the package would support a post-closing divestiture, practitioners should consider enduring the additional investigative burdens to get the authority’s permission to do so, even if there is already an identified purchaser. An upfront buyer requirement stops the parties from closing the main transaction before having finalised a binding agreement with a purchaser that has obtained approval from the authority. Because the agreement will not be finalised until the authority’s acceptance, it gives the buyer enormous scope to renegotiate the deal. Securing approval for a post-closing divestiture, even if not necessary, preserves the ability of the seller to threaten to walk away and turn to an alternative purchaser.

For example, in Holcim/Lafarge,⁵⁷ the European Commission accepted the parties’ proposal to divest the divested business through one of two alternative mechanisms: the first option through a standard M&A procedure; and the second, an option that had not been contemplated before in the Commission’s practice, a ‘hybrid option’, which allowed the parties to divest part of the divestment business through capital markets.⁵⁸ In a first step, the parties would propose an ‘anchor investor’ for the divestment business that would acquire a shareholding below 50 per cent, which would de facto confer control in the divestment business. The second step would entail the remaining shares being disposed of through an initial public offering or a spin-off. Eventually, the CRH group agreed to acquire the divestment business but the availability of the described hybrid option likely increased the merging parties’ leverage in the negotiations with CRH.

Even when an upfront buyer is necessary, there are certain contractual arrangements that may be used to lock in the potential buyer. For example, the parties to the negotiations may enter into a side letter whereby the buyer agrees to go ahead with the purchase of the divestiture package unless the authority requires changes to the divestiture process that are detrimental to the buyer’s position. To protect against the authority requesting additional assets to be included in the divestiture package, the parties may also agree beforehand on a price increase, or at least on a methodology to calculate a price increase.

When and how to approach the authorities

As mentioned above, there is a trade-off between timing and the scope of a divestiture package. But there are further strategic timing considerations that practitioners should take into account for a successful divestiture process. A successful strategy will balance preserving the arguments or goals that are important to the client, preserving credibility with the authority, and gathering sufficient information about the authority’s competition concerns to identify the most appropriate and proportionate remedy.

In any case where remedies are a serious possibility, it is advisable to cooperatively engage with the authority sooner rather than later. However, this does not mean that the parties should necessarily open remedy negotiations or engage remedies specifically as soon as possible. There are two main approaches to managing the process leading up to remedy negotiations: the ‘funnel approach’ or the front-loaded approach. The funnel approach involves starting the debate with the authority by discussing the easiest issues first and working through each issue to convince the authority that the transaction raises no concerns regarding that issue. The time to discuss remedies arrives when the debate reaches a point where it is no longer possible to convince the authority that the transaction does not raise any competition issues, or when the parties have run out of time.

The main advantage of this approach is that it conveys a strong message that the parties are not willing to divest or are strongly committed to the minimum divestiture package. The authority will thus be able to stay focused on evaluating the arguments about why the transaction raises no concerns and will not redirect some of its investigative resources to remedies. The drawback of this approach is that by the time the discussion reaches the point where remedies ought to be offered, there may not be much time left for the negotiation of remedies and the divestiture process. In the US, under the agencies’ current posture, once an investigation has begun the agency may not be willing to settle even with a high-quality divestiture, resulting in litigating the divestiture package. Where a divestiture is clearly required, this approach may also lead to a loss of credibility with the authority.

The opposite approach is to present a proposal to the authority from the outset of the discussions of what the parties are willing to divest to solve a particular problem. The analysis of the transaction can then be divided into two areas. On the one hand, the authority can review the transaction on the merits as to some issues, while it can evaluate the remedies package for other issues. If these two areas are not highly interrelated, this approach can be particularly beneficial and time-saving. It is likely that the only approach possible without litigation in the US given the current posture of the agencies, where in front of the DOJ it may also have the benefit of avoiding a formal consent decree. The drawback is that this approach may lead to the need to offer a more far-reaching divestiture package. If there are strong links between the two areas, then it is only possible to start with the negotiation of remedies at a later stage, once the parties have a clear idea of the problems that they have to address. Otherwise the authority may fear that it could lead to too much change in the divestiture package, which may change the group of interested or appropriate buyers.

However, the choice of approach is not a binary one. There are hybrid options or combinations of the funnel and the front-loaded approach that the parties may opt for. For example, one may start by taking the funnel approach and then switch to the other approach. The question then arises: when is the right time to switch? A possible answer is to switch when there is reasonable certainty of what divestiture will be required. Another option is to change approach if and when it becomes clear that the parties do not have a realistic prospect of convincing the authority that the transaction does not raise concerns in a particular market. Once again, this choice will depend on the parties’ needs and their response to the different strategies available.

The funnel approach is generally more appropriate in the broad sweep of cases. That said, the front-loaded approach can be very successful under certain conditions; for example (1) the competitive issue to be remedied is clear close to the outset of the investigation, (2) either there is not a realistic prospect of prevailing on the issue or the client wishes to divest anyway for business reasons, (3) the remedy package is clear and likely to face little scepticism (e.g., it is a stand-alone business), and (4) the client’s most important objectives are either timing or securing appropriate value for the package in a lengthy auction process.

Abbott Laboratories/St Jude Medical is an example of a concentration where remedies were offered and approved in Phase I. The proposed transaction was initially notified to the European Commission in early October 2016 and only after the first state-of-play meeting, where the Commission informed the parties of the preliminary results of the Phase I investigation, did the parties offer remedies, still within the deadline of 20 working days from the date of notification set forth in the Implementing Regulation.⁵⁹ The concentration was eventually conditionally cleared in November 2016. This timeline was possible because the Commission’s concerns over VCDs were raised early on in the review process. The parties had anticipated these concerns and were willing to offer a global remedy to divest the entire VCD business of St Jude Medical. Alstom/Bombardier Transportation is another example of a transaction which the European Commission found would have raised serious competition concerns in three areas (very high-speed rolling stock, mainline rolling stock and mainline signalling) but which was nevertheless approved in Phase I thanks to the comprehensive remedies offered by the notifying party.⁶⁰ In this case, Alstom was in a position to adopt this frontloaded approach thanks to the experience gained from the procedure in Siemens/Alstom, a proposed transaction affecting the same relevant markets which had resulted in a prohibition decision the year before.⁶¹

Of course, as in any negotiation, the personalities of the negotiators may play a role in the outcome of the negotiation. Practitioners may adopt one negotiation style or another depending on who is sitting on the opposite side of the table. For example, during the first three years of Commissioner Vestager’s mandate, merger approval decisions subject to remedies have doubled compared with the first three years of her predecessor, Commissioner Almunia.⁶² Thus, a higher probability that remedies may ultimately be required in any given case may shift the balance somewhat in favour of a front-loaded approach.

Special considerations in juggling multiple jurisdictions

An additional complication when evaluating remedies arises in cross-border deals. Merger control regimes around the globe have proliferated, and nowadays a cross-border merger may be subject to review by dozens of authorities around the world. This means that multiple competition authorities may require remedies to address the same or different concerns, not all of which may be compatible with one another. Practitioners involved in this type of transaction have come to the realisation that the design of remedies in cross-border transactions requires a multi-jurisdictional approach from the start. It is important to make sure that the parties present the transaction to the different jurisdictions that are reviewing it in a coherent manner, and this also applies to the remedies they offer in different jurisdictions. This is becoming even more important with the increasing inter-agency cooperation in the field of competition law and the use of waivers. One possible strategy is to time notifications to ensure that the antitrust authorities in the US or the EU review the transaction ahead of other jurisdictions. That way, the approach that these established authorities take can be used as a point of reference for the other agencies, and often the authorities themselves may contribute to a more coordinated approach across jurisdictions. Even between the US and the EU or EU Member States, practitioners should give careful thought to the timing strategies in each jurisdiction. In some cases it may be desirable to have both jurisdictions review the transaction in parallel. But in other circumstances, depending on factors such as the likely timing of the investigation, remedies discussion and industrial policy considerations, practitioners may find it more convenient to have one case team ahead of the other.

The Holcim/Lafarge case is an example of a multi-jurisdictional transaction in which different authorities cooperated, even though the relevant markets in the cement industry were defined as local markets. This concentration was reviewed by competition authorities in 20 different jurisdictions and it was not only subject to remedies in Europe. In this case, remedies could not be global because of the local nature of markets that led to different overlaps across the globe. In the United States, for instance, the cement from the parties’ plants was transported along a river basin to water-accessible terminals, and so this meant that the catchment areas were much larger than in Europe. This brought in more competitors and also changed the nature of the divestments that were required; for example, in some local markets, only a local terminal was required because competitors with access to the river area otherwise had sufficient excess production capacity. Proposing different types of assets in the European Union and in the United States required ensuring that each authority understood the different factual underpinnings of the remedies in the other jurisdiction and thus understood the different approaches being taken. Also, in that same case, the parties overlapped in some markets where terminals were in the United States, while the plants supplying them were in Canada. This required careful coordination with local counsel to ensure that the FTC and the Canadian Competition Bureau took the same approach and harmonised their remedies with one another.

When a concentration is subject to review in multiple jurisdictions, if the concerns identified by the different regional or local competition authorities are similar, remedies that are global in nature should be suitable to address concerns identified in any jurisdiction. This may involve divesting assets that are geographically spread across borders in an integrated way. However, especially considering the recent statements of the US agencies, the question remains whether remedies offered to obtain EU clearance will remove the US regulator’s concerns.

Post-Brexit, the UK is another key jurisdiction to reckon with. Importantly, it cannot be assumed that the CMA will follow the approach taken by other established jurisdictions. In fact, speaking at a conference on merger remedies in a post-Brexit context,⁶³ Colin Raftery (CMA) noted that between 2021 and 2023 there have already been two cases where the outcome in the EU and the UK has differed due to contrasting assessments of remedies, citing S&P/HIS and Facebook Kustomer in which the CMA would have found the European Commission’s remedies ineffective. In the former case, the two authorities required different remedies to clear the merger, but in the latter, while the CMA found in Phase I that the merger would not give rise to a realistic prospect of a substantial lessening of competition, the European Commission required (behavioural) commitments after an in-depth investigation.⁶⁴ Perhaps more striking is the different assessment of the Microsoft/Activision Blizzard deal, where the European Commission found that 10-year licensing commitments – to allow the streaming of games via any cloud game streaming service and ensuring that they could be played on any device using any operating system – could fully address the competition concerns identified with respect to the distribution of games via cloud streaming services and even improved the premerger situation significantly,⁶⁵ but the CMA prevented the deal after finding that the solutions proposed by Microsoft did not effectively address the concerns raised by the CMA in the market for cloud gaming services in the UK.⁶⁶ Microsoft and Activision Blizzard since withdrew and then renotified a restructured deal to the CMA. Microsoft will no longer acquire Activision’s cloud streaming rights outside of the EEA; Ubisoft will instead purchase those assets. Microsoft offered terms to enforce the divestiture as a remedy to the CMA to avoid a reference for a Phase II investigation.⁶⁷

Notes