The Department of Justice Antitrust Division recently issued a modernized Merger Remedies Manual, last updated in 2011. The Manual provides an overview of DOJ’s key considerations in crafting a remedy when the Antitrust Division concludes that a proposed transaction would otherwise result in a loss of competition.
As summarized by Assistant Attorney General Makan Delrahim, the updated Manual reflects the Antitrust Division’s “renewed focus on enforcing obligations in consent decrees and reaffirms the Division’s commitment to effective structural relief.” Although not a seismic shift in guidance, the updates to the Manual do provide greater transparency and predictability to the remedy process and therefore make the Manual a welcome and important resource for companies considering a transaction that might require a remedy, particularly in situations where the parties may wish to proactively propose and structure a merger remedy.
The Merger Remedies Manual reflects the following guiding principles:
- Remedies Must Preserve Competition. The Antitrust Division looks at the likely competitive harm caused by the transaction and determines whether, in its view, the remedy completely addresses the problem without going too far.
- Remedies Should Not Create Ongoing Government Oversight or Regulation. The Antitrust Division “strongly prefers” structural remedies (i.e., the sale of a line of business) over conduct or behavioral remedies (i.e., a promise not to raise prices). The Division does not want to be in the business of policing such conduct, and conduct remedies are rarely long-term solutions.
- Remedies Should Not Be Risky. The Antitrust Division wants remedies with a low risk of failing to address the competitive concern. To the extent there is any risk of failure, the risk should be borne by the parties, not consumers who would otherwise suffer the anticompetitive effects of the proposed transaction.
- Remedies Must Be Enforceable. The parties’ obligations in the consent decree must be clear, as must be the mechanism of the Antitrust Division’s enforcement. The decree must also bind all the parties necessary to ensure enforcement, such as the divestiture buyer.
Elements of a Successful Remedy
The updated Merger Remedies Manual identifies the following factors that the Antitrust Division will be looking for in a remedy and corresponding consent decree:
- In the case of a remedy involving a divestiture (which is the preferred Antitrust Division’s preferred course), the divestiture buyer must receive all the assets necessary to be a long-term competitor, with the incentives and ability to compete. The buyer needs not just the facilities, customers, employees, intellectual property, etc., to compete today, but also the knowhow and resources to develop new products to compete in the future.
- The Division prefers divestitures of entire existing standalone businesses, with assets ideally coming from only one of the two merging parties. Sometimes the Division concludes that divestiture of more than that will be required to preserve competition; however, divesting less than an entire standalone business rarely will be sufficient to address the Division’s concerns and only in limited and unique circumstances.
- Structural remedies are preferred for both horizontal and vertical mergers. The Division will consider a pure conduct remedy only in exceptional cases when the parties can prove: (1) a transaction generates significant efficiencies that cannot be achieved without the merger; (2) a structural remedy is not possible; (3) the conduct remedy will completely cure the anticompetitive harm; and (4) the remedy can be enforced effectively.
- A fix-it-first remedy, where the parties proactively design and present a remedy to address what they believe will be the Antitrust Division’s concerns, can (at the Antitrust Division’s discretion) avoid a consent decree and associated monitoring, if presented early in the process.
- The analysis of proposed and consummated transactions is not meaningfully different. If the Antitrust Division believes that a consummated transaction has resulted in a loss of competition, or is likely to do, the Division may seek a divestiture remedy.
- The Antitrust Division will want to approve the divestiture buyer and will look to make sure the buyer does not raise its own competitive issues, will be incentivized to compete in the target market, and is fit to be a long-term competitor.
- The consent decree must provide adequate means to investigate compliance. In situations where the monitoring burden is particularly high or the matter is particularly technical, the Division will require a monitor trustee to investigate compliance.
The Manual outlines current best practices implemented by the Antitrust Division when crafting and approving remedies. Given the Division’s continued push for increasingly expansive structural remedies that may include costly and intrusive monitoring mechanisms, it is important to look carefully at this guidance not only in remedy negotiations with the Division, but in evaluating the cost and feasibility of a remedy before entering into transaction that might require one.