Reed Smith Client Alerts

For the first time in more than a decade,1 the Department of Justice’s Antitrust Division updated its Merger Remedies Manual.2 The Manual operates as the Division’s “framework for structuring and implementing appropriate relief short of a full-stop injunction in merger cases.”3 The updates improve upon the 2004 Manual by providing a significantly more detailed account of the Division’s approach to preserving competition pre- and post-merger. Highlights of the various revisions and additions to the Manual are outlined below.

Reformulated principles from the 2004 Manual

As part of its update, the Division reformulated its guiding principles in analyzing, structuring, implementing, and enforcing remedies for both horizontal and vertical mergers. These principles emphasize the Division’s preference for structural remedies and refine the Division’s guidance on resolving a merger violation without the need for ongoing government oversight.

The key point here is that a remedy must be enforceable. It must preserve competition, not protect competitors or create ongoing government regulation. The risk of failure must be borne by the merging parties, not consumers. The Manual also notes that in cases of persistent competitive harm, temporary relief is not an adequate remedy.4

Clarity on most appropriate instances for conduct relief

Although structural remedies are “strongly preferred,”5 the Manual outlines the limited circumstances where conduct remedies may be appropriate: (1) to facilitate structural relief; or (2) where the merger generates significant efficiencies that would not otherwise be achieved, a structural remedy is not possible, and a conduct remedy would completely cure any anticompetitive harm and can be effectively enforced.

As compared to the 2004 Manual, the Division specifically revised its view on firewall provisions from standalone relief to conduct relief that facilitates structural relief. Given the policy and practical concerns surrounding firewall provisions, the Manual provides added assurances to litigators and merging parties of the behind-the-scenes efforts the Division will employ in ensuring targeted information is not disseminated. For example, the Division will expend time and effort to identify potentially problematic types of information, keep that information separate, monitor the remedy for the provision’s effectiveness and the parties’ adherence, and enforce “meaningful consequences for violations.”6

The updated Manual also clarifies the merging parties’ role in proving that standalone conduct relief is appropriate. For the Division to accept a conduct remedy, any potentially attainable efficiencies generated by the merger must: (1) be cognizable, rather than merely asserted, (2) mitigate any potential harm the merger may have on consumers in the relevant market, and (3) be unattainable from a structural remedy.

Approach to remedying consummated transactions 

In an entirely new section, the Manual highlights three different remedies post-transaction to effectively restore competition in relevant markets: (1) unwinding the transaction; (2) divestiture of more than the acquired assets; or (3) divestiture of less than the acquired assets. These proposed solutions stem from the Division’s analysis of federal case law in response to the “unique issues” posed by remedying a consummated deal.7  With further insight into the Division’s post-consummation approach, merging parties may be able to avoid post-consummation challenges altogether. 

Emphasis on collaboration 

This section highlights the Division’s willingness and desire to collaborate with international and state antitrust enforcers and regulatory agencies in creating effective and efficient structural remedies. The Manual suggests that collaboration is necessary to ensure remedies are enforceable across jurisdictions and do not conflict with international or state antitrust authorities. This is consistent with other recent Division initiatives.

The Manual also emphasizes the importance of collaboration when merging parties operate within regulated markets.  Just as with cross-border remedies, mergers in regulated industries must ensure the remedy does not include requirements inconsistent with those of the respective regulatory agency. 

Remedy characteristics to avoid

Perhaps the greatest improvement in “transparency and predictability” is the Division’s analysis of certain characteristics in proposed remedies that lead to a “greater risk of being found by the Division to be unacceptable.”8  According to the Division, the following characteristics increase the risk of a remedy resulting in anticompetitive effects: (1) divestiture of less than a standalone business; (2) mixing and matching assets of both parties; (3) allowing the merged party to retain rights to critical intangible assets; (4) ongoing entanglements between the merged firm and divestiture purchaser; and (5) substantial regulatory or logistical hurdles associated with the remedy.

This guidance is intended to assist merging parties in crafting acceptable and enforceable structural remedies that preserve competition.

Private equity or other investment firms as proposed purchasers 

Based on the January 2017 Federal Trade Commission’s Merger Remedies Report,9 the Manual was revised to provide guidance on the Division’s evaluation of proposed purchasers, particularly those funded by private equity firms.10  Essentially, the Division will use the same three fundamental tests11 in approving a private equity firm as it does with strategic buyers in order to avoid the sale raising antitrust concerns. Because the Division must approve any proposed purchaser, this addition provides a big win to merging parties held back by financing issues.

Time is of the essence

To assist merging parties in accomplishing a divestiture as quickly as possible, the Division revised the Manual to provide guidance on when it may be appropriate to name the divestiture buyer as a party to the consent decree. Specifically, in situations where the proposed remedy is contingent on third-party approval, and the divestiture purchaser’s cooperation is required to obtain the approval of that third-party, “the Division may require that the purchaser be named a party and bound by the decree.”12  This update reflects policies implemented in recent consent decrees13  and shows the Division’s adaptation to modern antitrust principles.

Guidance on prior notice provisions 

The Division also added a concise section on prior notice provisions, which in specific circumstances require the merged firm to report otherwise non-reportable deals to the Division. Those specific circumstances include “when there are competitors to the parties whose acquisition would not be reportable under the Hart-Scott-Rodino Act, and when market conditions indicate that there is reason to believe their acquisition may be competitively significant in the wake of the transaction.” 14