Crafting effective merger remedies is one of the Commission’s most important tasks. Done well, a divestiture prevents the competitive harm likely to result from a proposed merger and ensures that competition remains as robust as it was premerger.
Once Bureau staff has identified the likely harm from a proposed or consummated merger and the parties express interest in avoiding litigation by agreeing to a settlement, our attention quickly turns to devising a divestiture that would remedy the likely harm. But be warned: vetting proposed divestitures is serious business in the Bureau. Parties should expect that staff will consider a number of factors so that the final divestiture proposal minimizes the risk that the remedy will fail. Negotiating a divestiture remedy is an iterative process generally requiring significant revisions and additions or subtractions to various documents, including the divestiture agreement, transition services and supply agreements, and the Commission’s draft decision and order. As a result, parties should be aware of the significant risks and downsides to presenting a signed divestiture agreement to the Bureau as a fait accompli without having fully discussed it with staff.
Before putting pen to paper, parties should discuss with Bureau staff what assets, rights, and personnel should be included in the divestiture package. For instance, assets outside the market of concern may be necessary for the divested business to be competitive and viable, and may need to be included in the divestiture package.
Understanding the scope of the divestiture package is a necessary prerequisite to an effective sales process, as it affects which buyers are likely to be acceptable. The acceptability of a divestiture package could vary depending on the proposed buyer. Different buyers may need more or less or different divestiture packages to be a viable competitor post-order. Proposed buyers with experience in the business – but not presently competing in the affected market – also will typically result in a shorter vetting process. Buyers with experience in adjacent geographies or complementary products or with experience selling other products to the same customer base may be good candidates. Buyers that do not have experience in the business or are purely financial purchasers will be subject to more significant scrutiny before the Bureau will be able to recommend them to the Commission.
The Bureau’s Compliance Division is experienced in vetting divestiture packages and buyers. Each divestiture order is designed to remedy the particular risk to competition created by the merger. Rather than expediting an approvable outcome, parties who skip the preliminary discussions and present signed documents may complicate staff’s analysis of the parties’ proposal and prolong, rather than shorten, the vetting process. Additionally, the Bureau may insist on revisions to the executed agreements or the scope of the proposed divestiture, and may reject the proposal completely. For this reason, it is generally much easier and more efficient to negotiate with draft documents than signed, “final” deal documents that will likely need to be modified and amended.
In addition, the Bureau works diligently to expeditiously resolve settlements and make appropriate recommendations to the Commission. Before voting on the Bureau’s recommendation, Commissioners may ask questions about the scope of the package and other proposed buyers. The Bureau must be able to explain the steps it has taken to vet the divestiture when recommending one to the Commission. Investment on the front end by parties in complete, accurate, and responsive discussions with staff, rather than delivering a quickly executed, but problematic, divestiture package will be the fastest path to getting through the process with a successful outcome.
To help those unfamiliar with how we develop effective merger remedies, the Bureau has new resources to guide you through the process – one for respondents (typically the acquiring company) and one for potential buyers of the divested assets. Together with the Best Practices developed from the lessons learned during the 2017 Remedy Study (see pp. 31 – 37), these new resources can help prospective respondents and buyers anticipate what the Commission is likely to accept in a merger settlement that includes a divestiture. The parties to the merger and any proposed buyer should also refer to other resources developed by the Bureau including a guide to negotiating merger remedies and a set of FAQs.