New DOJ Merger Remedies Manual: Key Points for Dealmakers
The newly-published Merger Remedies Manual of the Antitrust Division offers some optimism for private equity buyers and crystalizes the DOJ’s preference for divestitures, even in vertical mergers. But in the round, the Manual recaps the well-established framework that the DOJ employs when analysing proposed relief and negotiating settlements with transacting parties to resolve competitive concerns. Here are five key takeaways dealmakers should keep front of mind:
- Uncertain shelf-life: the Manual itself recognizes that it “has no legally binding effect... and may be rescinded or modified in the Division’s complete discretion.” Indeed, current Division leadership took this course in September 2018 when it withdrew the 2011 Policy Guide to Merger Remedies issued by its predecessors. As the presidential election and a potential change in administration looms, it is important to recognize that the Manual could soon be rescinded and replaced with new guidelines that reflect the priorities of new Division leadership.
- Situational preference for private equity buyers: the Manual states that the DOJ will use the same criteria to vet private equity buyers as it applies to strategic purchasers or other investment firms. Indeed, it suggests that private equity buyers may be preferred to the extent that their flexible investment strategy, commitment, and willingness to invest more (when required) help support the divested business. This contradicts recent criticism concerning the investment incentives of private equity firms, voiced most notably by Commissioner Rohit Chopra (Democrat) of the Federal Trade Commission. It also sets up potential conflicts on global remedies with the European Commission, which has been critical of private equity buyers as well.
- Strong preference for structural remedies in both horizontal and vertical mergers: the US agencies have long preferred structural remedies (i.e. divestitures) to resolve competitive concerns relating to horizontal mergers. The Manual formalises more recent comments from the DOJ that also favor structural remedies to address vertical issues. In the past, it has sometimes adopted behavioural remedies. Notably, in a string of cases, it approved Ticketmaster / Live Nation; Comcast / NBC Universal, and Google / ITA subject to conduct remedies including licensing, anti-retaliation commitments and firewalls. This flexibility to consider conduct remedies was reflected in the DOJ’s 2011 Policy Guide to Merger Remedies before it was withdrawn by the current leadership. The Manual strongly states the DOJ’s belief that structural remedies should always be preferred to address vertical concerns and re-emphasizes that, in general, tailored conduct remedies should only be considered as an adjunct to a structural remedy (e.g., temporary transitional services to support a divested business).
- Strong preference for upfront buyers: the Manual indicates that, in most cases, the DOJ will require the transacting parties to identify an upfront buyer that is capable and incentivized to successfully compete, once it has acquired the proposed divestiture package, before accepting a settlement. This is particularly true when the Division fears there may be few qualified buyers for a divestiture package. Exceptions to this rule will be limited to when the Division is confident that the proposed package will attract numerous potential buyers capable of effectively competing, after they have acquired the divested assets.
- Continued cooperation with other antitrust enforcers: the Manual states that the DOJ will continue “to cooperate with international and state antitrust authorities to enact more efficient and effective merger remedies.” This cooperation is underscored by the Manual’s statement that addressing competitive concerns in US markets will sometimes require “divestiture of a world-wide business or assets outside of the United States.” Dealmakers should anticipate that international cooperation and communication will likely continue to increase, potentially leading to more remedies addressing so-called global markets or implicating assets located abroad. In addition, efforts at cooperation combined with the more aggressive enforcement posture among state attorneys general could lead to them having greater input in the remedy process, particularly if such input helps avoid divergent enforcement decisions between federal and state authorities, such as in the T-Mobile / Sprint transaction.
The Merger Remedies Manual is not a game-changer but reflects an attempt by Division leadership to stamp its nuanced views on the most important priorities for merger settlement. For today, it is a blueprint for negotiating remedies with the DOJ (notably, the FTC has not promulgated new views since its 2012 Statement on Negotiating Merger Remedies). Its staying power, however, may be limited. Should a change in administration occur, dealmakers should be prepared for new guidance, likely with a more enforcement-minded tone.