According to the Bureau’s Statement on Negotiating Merger Remedies, the goal of a structural merger remedy is to maintain or restore competition in the markets affected by the merger while allowing the parties to proceed with those parts of the merger that do not raise competitive concerns. Usually, this approach results in a Commission order to divest key assets or capabilities to a buyer that will become a new competitor in the market and that can maintain the competitive status quo.
A key question in any merger remedy involving a divestiture therefore is this: what assets will a new competitor need to compete in the market in order to take the place (competitively speaking) of the acquired firm in the markets affected by the merger?
As I often say when speaking about divestiture packages: assets don’t compete; businesses compete with assets. In other words, in fashioning a remedy that will restore or maintain competition in a market, we are looking to end up with a business that competes effectively. For the majority of merger remedies, the divestiture package contains the assets and related rights and capabilities that an existing competitor has used to make or sell the relevant product. But sometimes firms competing in the relevant market also operate in other product or geographic markets not directly affected by the merger. If out-of-market assets are needed to make up a competitive business in the relevant market, then they go into the divestiture package as well.
Here are a few recent examples where the Commission-ordered divestiture included out-of-market assets. After finding that Polypore’s acquisition of rival Microporous substantially reduced competition in several North American markets for battery separators, the Commission ordered divestiture of the entirety of Microporous’ business – including a plant located in Austria. In reviewing the Commission’s divestiture order on appeal, the Eleventh Circuit accepted the Commission’s reasoning that (1) the buyer of the Microporous assets would need the Austrian plant in order to manage its capacity and compete effectively for North American customers, and (2) multiple plants would provide insurance that the buyer could supply local customers and avoid supply disruptions.
In Community Health Systems/Health Management Associates, the Commission’s competitive concerns were based on a reduction in competition among providers of general acute care hospital inpatient services sold to commercial health plans in two local markets. In order to remedy the likely competitive effects of that acquisition, the Commission required that Community divest not just the hospital facilities but all outpatient services and operations that were affiliated with the hospitals, whether those services were provided at the hospital or at a different facility. Prior to the merger, each of the divested hospitals was integrated with these other facilities and operations, and, as a result, the Commission determined that the outpatient business would be necessary for the buyer of each hospital to be as effective a competitor as HMA had been pre-merger.
And finally, the Commission alleged that the proposed merger of Sun Pharmaceutical and Ranbaxy Laboratories would likely substantially lessen future competition for three relevant products – three dosage strengths of generic minocycline tablets used to treat a variety of infections. To prevent the likely harmful effects of the merger, the Commission required the firms to sell not only assets related to the sale of generic minocycline tablets, but also those related to three dosages of generic minocycline capsules. Adding the capsule assets allows Torrent (the upfront buyer) to use a shorter FDA regulatory process because it controls both products and uses the same ingredient (API) supplier – just as Ranbaxy did prior to the merger. Without the additional capsule assets, Torrent would not be able to enter and sell minocycline tablets as quickly as would have Ranbaxy, and competition would not be maintained in the tablet markets.
With divestitures, as with antitrust generally, facts matter, and ultimately, the remedy must restore or replace the competition lost due to the merger. When appropriate, the Commission will include out-of-market assets in the divestiture package to ensure the buyer has what it needs to compete in the post-merger marketplace.