New data reveals an increase in the use of pre-approved buyer remedies on both sides of the Atlantic, although they are still more frequent in the U.S. than in the EU.
There are some procedural differences in the buyer-approval processes in the U.S. and EU. In the U.S., the antitrust agencies may require an “upfront” buyer, or may in more limited circumstances allow a “post-order” buyer. When an upfront buyer is required, merging parties must find a willing and able buyer; negotiate a purchase agreement with that buyer for the assets to be divested; and present that purchase agreement, the buyer’s business plan, and other information to the agency as part of the approval process before the merging parties can consummate their transaction.
By contrast, for post-order buyers, the agency approves a merger and the assets to be divested, but allows the companies to close before a buyer has been approved. The companies then have a period (e.g., six months) after closing in which they must get the agency’s approval of the buyer and the divestiture agreement. Deferring the buyer approval process allows companies to close their transactions more quickly.
In the EU, the “standard” remedy is similar to the “post-order” buyer situation in the U.S., i.e., the companies can close their transaction and then have a specified period (typically around six months) – known as the “first divestiture period” – in which to complete the divestiture to an approved buyer. But if the Commission determines a pre-approved divestiture buyer is required, the EU (unlike the U.S.) has multiple variations on the process for approval.
A “fix-it-first” remedy, as that term is used in the EU, is the equivalent of the “upfront buyer” remedy in the U.S. Fix-it-first remedies require the merging companies to obtain approval for a divestiture buyer within the timetable for review of the original notification before the Commission will clear the merger.
Alternatively, in an “upfront buyer” EU remedy, the Commission will grant conditional clearance at the end of the investigation for a merger without identifying a divestiture buyer. But the companies cannot close their merger until an upfront buyer has been presented to the Commission and approved. In rare circumstances, the Commission has also accepted a “hybrid” of fix-it-first and upfront buyer elements.
Traditionally, DAMITT data show that both the U.S. and EU frequently did not require pre-approved buyers before allowing merging companies to close. But in recent years, as the numbers below show, both jurisdictions have increasingly moved toward requiring pre-approved buyers in an attempt to reduce the risk of divestiture failures.
Upfront Buyers Remain Standard Practice in U.S. Divestiture Remedies
The U.S. agencies’ insistence on upfront buyers remained high for 2019 YTD, with 80 percent of divestiture consents requiring upfront buyers. For the RTM ended Q3 2019, 88 percent of consents required an upfront buyer, an increase over the 73 percent of consents requiring an upfront buyer in the RTM ended Q3 2018.
This process can add significant time to the investigation. DAMITT has observed that investigations ending with consents requiring upfront buyers lasted more than two months longer than those with consents permitting the merging parties to find and negotiate with divestiture buyers after consummating their transaction.
The U.S. agencies have been vocal about their policy preference for upfront buyers on the belief that they may reduce the number of divestiture failures. This preference is confirmed by the data. Since the start of 2018, only three significant U.S. investigations resulting in divestiture consents did not require upfront buyers. All three were settled by DOJ; none by the FTC. This statistic suggests that DOJ may be more open than the FTC to post-order buyers in certain circumstances, particularly where there is significant interest in the divestiture assets by potential buyers and precedent for successful divestitures in the same industry.