The Federal Trade Commission today announced the release of a staff report titled "A Study of the Commission's Divestiture Process." Prepared by the Commission's Bureau of Competition, the report evaluates the results of a study of divestiture orders entered between 1990 and 1994, including 35 orders in which asset divestitures--including licensing of intellectual property--were required. Based on interviews conducted in a case-study format, the report discusses the factors that make divestitures more successful, and concludes with recommendations designed to ensure more effective divestitures in the future.
According to FTC's Bureau of Competition Director William Baer, "The study confirms the importance of one of the approaches currently being used by the Commission, the so-called 'up-front buyer,' where the buyer of the assets to be divested is identified earlier in the process. The use of the up-front buyer both reduces the likelihood that consumers will be harmed while waiting for the divestiture, and also assures that there will be an acceptable buyer."
The study finds that most divestitures are successful and appear to have created viable competitors in the markets with which the Commission was concerned. That success is more likely with the divestiture of an ongoing business than with the divestiture of a single product line or proprietary technology. In addition, divestiture to a firm experienced in a related business is more likely to be successful than divestiture to a new entrant.
The report also provides a detailed picture of the dynamics of the divestiture process. It notes that in some cases an informational and bargaining imbalance has existed between the respondents and the buyers of divested assets, particularly when the buyers have never operated in the industry. These imbalances can cause buyers to underestimate the assistance they may need from the respondent or cause difficulties regarding know-how and technology transfers. Several of these buyers, however, (as illustrated through specific cases in the report) have been able to overcome problems with their divestitures. Based on the review of these divestitures, the report recommends that the Commission include specific order provisions that are designed to protect buyers and that mitigate the effects of a buyer's lack of information.
Public Comment on the Report
The report's description of divestiture policy and practice is intended to give individuals both inside and outside the Commission a common framework in which to discuss both general divestiture policies and their application to specific cases. The public version of the document is identical to that submitted to the Commission. However, in order to maintain the confidentiality of the participants, the buyers of divested assets and respondent are not identified by name but by random number. The Commission invites members of the public to submit their views on the report.
Interested persons should submit their comments to the Secretary, Federal Trade Commission, Washington DC 20580, or by contacting the Commission's Web site at http://www.ftc.gov. All submissions will be placed in the public record and will be considered as the Commission drafts divestiture orders in future cases.
The Commission's vote to release the staff report was 4-0.
The views expressed in the staff report are not necessarily those of the Commission or any individual Commissioner.
Copies of the report are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. P925803)