The U.S. Department of Justice Antitrust Division, one of the two federal antitrust authorities, recently released an updated version of its Policy Guide to Merger Remedies. This guide, which replaces the previous 2004 version, reflects changes in the merger landscape and in U.S. merger enforcement policy. In particular, the new policy guide affirms the Antitrust Division's evolving attitude towards the use of conduct remedies to resolve competitive concerns, particularly for vertical mergers, i.e., mergers between parties situated at different levels of the supply chain.
The policy guide is a tool used by Antitrust Division staff in
analyzing proposed remedies in merger matters and is also intended
to provide transparency to the business community, antitrust
practitioners, and the broader public regarding the Antitrust
Division's approach to merger remedies. Key principles applied
in analyzing merger remedies remain the same in the latest version
of the guide, and include: (1) effectively preserving competition
is the key to an appropriate merger remedy; (2) remedies should
focus on preserving competition, not protecting individual
competitors; and (3) remedies must be based on careful application
of legal and economic principles to the particular facts of a
specific case.
Merger remedies to resolve competitive concerns take two basic
forms: structural remedies, which generally involve the sale of
physical assets by the merging firms (or in some cases the sale or
licensing of intellectual property rights), and conduct remedies
(also known as behavioral remedies), which usually involve
provisions that manage or regulate the merged firm's
post-merger business conduct. Conduct remedies can take various
forms, including restrictions on certain contracting practices,
non-discrimination provisions, anti-retaliation provisions, and
information firewalls, among others. The 2004 version of the policy
guide strongly disfavored the use of conduct remedies, as opposed
to structural remedies, in all but a limited number of
circumstances, noting that conduct remedies are more difficult to
craft, more cumbersome and costly to administer, and easier than a
structural remedy to circumvent. In sharp contrast, the new policy
guide takes the position that, depending on the circumstances of a
particular case, conduct relief, either alone or in combination
with structural relief, may be the optimal choice. The new guide
explains that for many vertical transactions, structural remedies
can eliminate a merger's potential efficiencies, whereas
tailored conduct relief can prevent behavior that might harm
consumers while still preserving the beneficial aspects of the
merger. Even for transactions that raise horizontal issues (i.e.,
involving firms that are actual or potential competitors), the 2011
policy guide notes that although structural remedies are the
predominant tool to be used, conduct remedies in combination with
structural remedies may be most appropriate in certain cases. The
new policy guide highlights the importance of developing clear
remedies that can be properly enforced.
There are other, more subtle, differences between the new policy
guide and the 2004 version. In the case of divestitures where the
merging parties are not divesting a stand-alone business, the new
guide notes that the Antitrust Division may require that an upfront
buyer for the divestiture assets be identified and approved, or the
use of a "crown jewel" provision whereby if an acceptable
purchaser cannot be found for the specified divestiture package
within a certain period, the parties include additional valuable
assets to make the package more attractive to potential purchasers.
This position is more favorable towards the use of crown jewels,
which were strongly disfavored under the 2004 version of the guide.
The new version of the policy guide also highlights the role of the
Antitrust Division's recently created Office of the General
Counsel, which will be principally responsible for enforcing
Antitrust Division consent decrees.
The 2011 policy guide comes at a time when there appears to be a
heightened interest, especially by the Antitrust Division, in
mergers involving vertical concerns. Recent examples include
Google's $700 million acquisition of ITA Software, the merger
of Ticketmaster with Live Nation Inc., and Comcast's
multi-billion dollar media joint venture with NBC Universal. All
three transactions involved a vertical component, underwent lengthy
DOJ antitrust reviews and were found to raise antitrust concerns.
They were ultimately cleared, but only after the parties agreed to
settlements involving conduct remedies (the Ticketmaster/Live
Nation consent decree also included divestitures). Although the
government has displayed an appetite for more enforcement based on
vertical theories of competitive harm, in these settlements it has
shown a greater willingness to accept creative and in some cases
complex remedies to address concerns while permitting transactions
to proceed. The new policy guide affirms this shift in merger
enforcement policy.
Given the increased scrutiny of vertical transactions, firms should be aware that just because the other party to a proposed transaction is not a head-to-head competitor does not necessarily guarantee the absence of an antitrust problem. However, in deals where the competitive issue is vertical rather than horizontal, the new policy guide clearly paves a path for the antitrust agencies, or at least the Antitrust Division, to entertain various remedies that fall short of full asset divestitures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.