U.S. Antitrust Merger Remedies: FTC vs. DOJ?
By Michael H. Byowitz & Lori S. Sherman1
I.
Introduction
In the United States, the Federal Trade Commission (“FTC”) and the Antitrust
Division of the U.S. Department of Justice (“DOJ”), the primary federal agencies with
jurisdiction to review and challenge mergers and acquisitions, can choose among a variety of
tools to remedy a merger believed to violate the antitrust laws. Of course, an injunction is the
most powerful weapon in the agency arsenal to prevent an anticompetitive merger from being
consummated. Most mergers believed by the agencies to result in anticompetitive harm are not
litigated, but rather are resolved by remedies included in a consent decree negotiated with the
parties.
This paper examines the approaches that the DOJ and the FTC take to negotiated
resolutions of merger investigations. As will be seen, while the approaches of the two agencies
are generally similar, there are important differences on a number of key issues that can be and
not infrequently determine how quickly the merging parties can complete their transactions and
the degree of difficulty they will face in effecting the agreed remedy.
II.
Goal of Antitrust Remedies
The principal law under which the U.S. federal agencies review the antitrust
merits of mergers and acquisitions is Section 7 of the Clayton Act, which prohibits transactions
that substantially lessen competition.2 If a merger or acquisition is found to violate this
1
Michael Byowitz is a partner and head of the Antitrust Department of Wachtell, Lipton, Rosen & Katz in New
York City. Lori Sherman is an associate of Wachtell, Lipton, Rosen & Katz.
2
15 U.S.C. § 18. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended from time to time,
15 U.S.C. § 18a, certain mergers and acquisitions must be notified to the agencies and, in such cases, cannot be
consummated until notification has been filed and the relevant waiting periods have expired or been terminated early
by the agencies.
substantive standard -- e.g., where the merged entity may have the power unilaterally to raise
prices or where one of the market leaders acquires a particularly disruptive competitor leading to
likely coordinated effects in an oligopolistic market -- then the next step in many transactions is
determining whether it is possible to remediate the perceived anticompetitive effects without
blocking the entire transaction.3
The FTC has stated that its remedial objective is to “prevent the anticompetitive
effects likely to result from a merger that the [FTC] has determined is unlawful.”4 According to
the DOJ, “although the remedy should always be sufficient to redress the antitrust violation, the
purpose of the remedy is not to enhance pre-merger competition but to restore it.”5 The goal of
the antitrust remedy is to protect competition so that post-merger competitive intensity remains
unchanged. As the DOJ has stated, “[b]ecause the goal is reestablishing competition -- rather
than determining outcomes or picking winners or losers -- decree provisions should promote
competition generally rather than protect or favor particular competitors.”6
III.
Procedural History
While both the Antitrust Division and the FTC are authorized to settle merger
challenges without having to litigate, the authority on which each agency can do so differs.
3
The focus of this article is the design and implementation of remedies by the FTC and the DOJ. We note that
Section 7 may also be enforced by private parties and State attorneys general pursuant to Sections 4 and 16 of the
Clayton Act. 15 U.S.C. §§ 15(a) & 26.
4
Negotiating Merger Remedies, Statement of the Bureau of Competition of the Federal Trade Commission, Joseph
J. Simons, Director (April 2, 2003) [hereinafter, “FTC Statement”].
Antitrust Division Policy Guide to Merger Remedies, U.S. Dep’t of Justice, DOJ, at 4 (Oct. 2004) [hereinafter
“DOJ Policy Guide”]. This sentiment is echoed by the courts as well. According to the U.S. Supreme Court,
restoring competition is the “key to the whole question of antitrust remedy.” United States v. E.I. du Pont de
Nemours & Co., 366 U.S. 316, 326 (1961). The judicial guidance as to remedies comes from litigated cases in the
pre-Hart-Scott-Rodino Act era when the government generally learned about anti-competitive mergers only after
they were consummated.
5
6
DOJ Policy Guide, at 5. If a merger has been consummated, the goal would be to restore competition to the level
where it was prior to the anticompetitive merger. With the passage of the Hart-Scott-Rodino Antitrust
Improvements Act in 1976, the agencies less often face the circumstances where a transaction has to be unwound.
-2-
Prior to the 1970s, DOJ settlements short of litigation were done on an informal
basis. Following public allegations regarding improper conduct with regard to DOJ settlements
as part of the Watergate scandal, in 1974, Congress enacted the Tunney Act, formally known as
the Antitrust Procedures and Penalties Act.7 The Tunney Act requires the DOJ to provide
information to the court responsible for approving the settlement, and the public, so that the court
can make an informed determination, with comments from interested members of the public, of
whether to accept or reject the settlement as in the public interest. The Tunney Act was a
“government in the sunshine” provision, enacted to eliminate so-called “judicial rubber
stamping” of DOJ settlements.8
The Tunney Act was recently amended to correct some omissions from the 1974
statute and to clarify obligations of the DOJ and the public interest inquiry by the reviewing
court. Under the Tunney Act, the DOJ is required to prepare a competitive impact statement,
describing, among other things, the case and the relief sought in the consent decree, evaluating
alternative remedies actually considered, and discussing remedies available to private injured
parties and procedures available for modifying the proposal. The DOJ statement must be filed
along with the proposed consent decree and must be published in the Federal Register at least
sixty days before the decree becomes final.9 The DOJ then must consider any written comments
submitted by the public and publish a response to them in the Federal Register after the 60-day
period. Finally, the court considering the consent decree must determine whether the consent
decree is in the public interest.
7
15 U.S.C. § 16(b)-(h).
8
HR Rep. No. 93-1463, at 8-9, 12 (1974), 1974 U.S. Code Cong. & Admin. News, at 6535.
9
Under the amended Tunney Act, the DOJ is also required to publish summaries of the consent decree in
newspapers of general circulation in the district in which the proceeding is pending and any other districts
determined by the court to be relevant.
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Settlements with the FTC are also subject to public notice and comment. Unlike
the DOJ, the FTC is a quasi-judicial administrative agency. When the Commission votes to
commence a proceeding, it commences an administrative proceeding governed by the provisions
of the FTC Act. The FTC is not subject to the provisions of the Tunney Act, but instead is
subject to somewhat analogous provisions of the FTC Act.
Pursuant to the FTC Act, the FTC has promulgated regulations setting out the
procedures applicable to settlement procedures.10 Once the FTC has approved a consent decree,
the FTC will place the proposed consent decree, the complaint and the proposed order containing
the consent decree in the public record for thirty days, during which time interested persons may
submit comments. At the same time, the FTC will publish an analysis of the proposed consent
order to aid the public. The analysis typically discusses the proceeding, the complaint, and how
the proposed consent order remedies the FTC’s antitrust concerns. Following the initial
comment period, the FTC may either withdraw its acceptance of the agreement, modify the
proposed consent order, or issue a final decision and order.
IV.
The DOJ and FTC Generally Agree on Merger Remedy Policy
The existence of two antitrust enforcement agencies with authority to review and
settle mergers raises the prospect of divergent outcomes. Since the FTC and DOJ purport to
apply the same substantive standards and they have common stated goals in seeking remedies, it
is not surprising that there are many similarities in the merger remedy positions of the two
agencies.
10
16 C.F.R. § 2.34.
-4-
1.
Both Agencies Prefer Structural Remedies
In horizontal merger cases, both the DOJ and the FTC have strong preferences for
structural remedies such as the divestiture of one of the two overlapping businesses.11
Remediation of a perceived anticompetitive merger by means of a structural remedy is perceived
to be clean because it involves no supervision or oversight once the divestiture is completed.
Conduct restrictions are generally discouraged because they are perceived as being “regulatory”
in nature, requiring prolonged review of the acquirer’s conduct after the merger.
2.
Divestitures Must Include All Necessary Assets
Both agencies take pains to assure that a divestiture intended to remediate the
anticompetitive effects of a merger is sufficient to preserve a viable competitor post-divestiture.
In a Policy Guide to Merger Remedies, issued in October 2004 (“DOJ Policy Guide”), the DOJ
states that the “goal of a divestiture is to ensure that the purchaser possesses both the means and
the incentive to maintain the level of pre-merger competition in the market(s) of concern.”12
Similarly, the FTC has stated that the parties should be prepared to show that the business unit
contains all components necessary to operate autonomously so that “the buyer of the business
unit will be able to maintain or restore competition.”13
To ensure that the buyer will have the means and the incentive to become a viable
competitor, the divestiture package must contain all assets necessary to enable the divestiture
buyer to compete fully immediately following the divestiture sale. The package should be
“sufficiently comprehensive [so] that the purchaser will use [the assets] in the relevant market
11
DOJ Policy Guide, at 7-9; The United States Federal Trade Commission Promotes Better Markets and Better
Choices: A Look at Health Care and Financial Services, Remarks by Deboarah Platt Majoras, Chairman, United
States Federal Trade Commission, European Competition and Consumer Day “Better Markets, Better Choices,”
September 15, 2005, at 5 & n.7, available at http://www.ftc.gov/speeches/majoras/050915ukcompday.pdf.
12
DOJ Policy Guide, at 9.
13
FTC Statement, at 5.
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and be unlikely to liquidate or redeploy them.”14 Both the DOJ and the FTC will scrutinize a
proposed divestiture package of assets to determine whether it includes all necessary components
of the overlapping business. Depending upon the competitive concerns identified, the assets to
be divested could include “manufacturing facilities, research and development capability,
technology and other intellectual property, access to personnel, marketing and distribution
capabilities, supply relationships, service relationships, customer relationships, capital resources,
and anything else necessary to compete effectively in the relevant market.”15 Occasionally, the
agencies may require the inclusion of additional, non-overlapping products, if deemed necessary
for the buyer to remain competitive in the market. This arises, for example, when the relevant
products are marketed and distributed along with other products.16 In addition, if the business to
be divested is part of a vertically integrated company, and it is determined that access to
upstream or downstream assets is an important element of competitiveness in the relevant
market, the parties may be required to include assets at more than one level.17
Both agencies will have concerns if the proposed assets to be divested do not
comprise a separate, autonomous business unit. In such cases, the parties will be required to
demonstrate that the package “includes all components of an autonomous business or that [such
components] are otherwise available.”18 Ultimately, the goal of both agencies is to provide
14
DOJ Policy Guide, at 9-10.
15
FTC Statement, at 5; accord DOJ Policy Guide, at 9-12.
16
FTC Statement, at 5; accord DOJ Policy Guide, at 14.
For example, in the merger of Nestle Holding, Inc.’s and Dryer’s ice cream businesses, the parties were required
to divest not only premium ice cream and fruit bars, where a competitive issue was perceived to exist, but also fruit
bar distribution assets, where no independent competitive issue was perceived. In re Nestle Holding, Inc., FTC
Docket No. C-4082 (Nov. 12, 2003) (Decision and Order), available at http://www.ftc.gov/os/2003/
11/0210174do.pdf; see also DOJ Policy Guide, at 11, 14-15.
17
18
FTC Statement, at 5; accord DOJ Policy Guide, at 14.
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sufficient assets so that the buyer can quickly replace the competition that would be lost after the
merging parties consummate their transaction.19
The parties will need to explain the reason for excluding any assets that would
appear to be needed for success in the business. For example, the agencies are generally dubious
when research and development assets are excluded from the divestiture, although this may be
deemed acceptable where the buyer has its own research and development capability concerning
the relevant products or such services are readily available from a third party. Where such assets
are excluded from the divestiture package, the agencies will seek to confirm the parties’
explanation for the exclusion by contacting third-parties, such as suppliers, customers, and
competitors.
3.
The Divestiture of An Existing Business Is Preferred
Both the DOJ and the FTC have expressed preference for the divestiture of an ongoing or existing business over a collection of assets that have been cobbled together to meet a
competitive concern. In the FTC’s Study of the Commission’s Divestiture Process (“FTC
Divestiture Study”), the FTC staff found that the divestiture of an ongoing business is more likely
to be successful than the divestiture of selected assets.20 The FTC staff evaluated 37 divestitures
in consent orders issued from 1990 to 1994.21 Twenty-two of these involved the divestiture of
on-going businesses, and 19 of those 22 divestitures (86%) were found to have resulted in the
preservation of a viable competitor post-divestiture. By contrast, there was a lower success rate
19
DOJ Policy Guide, at 4; FTC Statement, at 5.
A Study of the Commission’s Divestiture Process, prepared by the Staff of the Bureau of Competition of the
Federal Trade Commission (1999), at 10 [hereinafter “FTC Divestiture Study”].
20
21
FTC Divestiture Study, at 7-8. The Staff studied 35 consent orders that involved 50 divestitures in the aggregate.
However, the Staff only examined 37 of the 50 divestitures embodied in those 35 consent decrees.
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for divestitures that were comprised of selected assets -- nine of 15 (60%) were found to have
resulted in viable competitors.22 Similarly, the DOJ has stated that an
existing business entity provides current and potential customers with a track
record they can evaluate to assure themselves that the unit will continue to be a
reliable provider of the relevant products. Importantly, an existing business
entity’s track record establishes a strong presumption that it can be a viable and
effective competitor in the markets of concern going forward.23
Notwithstanding clear preferences for the divestiture of autonomous businesses,
both agencies consider partial divestitures to be acceptable in limited circumstances. For
instance, the FTC Divestiture Study noted that there may be instances where the divestiture of an
on-going business is undesirable because it will destroy efficiencies of a merger.24 At the DOJ,
divestiture of a partial business may be permissible where there is no existing business entity that
is smaller than either of the merging parties and a set of assets can be assembled from both
parties that in the aggregate creates a viable business. Partial divestitures may also be acceptable
where certain of the assets deemed necessary to operate successfully are already in the
possession of the divestiture buyer or are readily obtainable from non-parties.25
In line with these policy statements, there have been occasions where the FTC and
DOJ have each found the divestiture of assets that previously had not operated autonomously to
be sufficient to enable the divestiture buyer to compete effectively post-merger. For example, in
the petroleum industry, the FTC has permitted the divestiture of discrete assets or groups of
assets that previously had not operated as autonomous businesses after an investigation led the
22
FTC Divestiture Study, at 11-12.
23
DOJ Policy Guide, at 12.
24
FTC Divestiture Study, at 12. In such cases, the Divestiture Study suggested that the FTC should include
provisions in consent decrees to attempt to reduce the risks that a buyer of a partial business will not be viable
following the divestiture. These provisions such as interim monitors and crown jewel provisions are discussed at
pages 18 - 30, supra.
25
DOJ Policy Guide, at 13-14.
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FTC to conclude that the assets selected for divestiture were sufficiently discrete to restore
competition to pre-merger levels. Examples include the divestiture of stand alone assets such as
a single refinery or a geographically connected set of assets such as a group of terminals and a
related pipeline.26 The DOJ similarly has permitted the divestiture of partial businesses in
circumstances where it found that assets to be sufficient to lead to viable competition following
the merger.27
4.
“Clean Sweeps” vs. “Mix and Match” Remedies
The requirement that the divestiture consist of one of the merging parties’
overlapping businesses is called a “clean sweep” requirement. A “clean sweep” divestiture
satisfies the stated goal of both antitrust agencies to restore competition to its pre-merger levels
in that, once effected, there is no resulting change in the pre-merger concentration levels in the
relevant market. On the other hand, sometimes parties will propose the divestiture of a
combination of assets selected from both of the merging firms, the so-called “mix and match”
approach. Both agencies have a preference for clean-sweep divestitures over mix-and-match
asset packages, although the FTC preference appears to be more pointed.
The FTC preference against mix-and-match divestitures arises from the FTC
Divestiture Study’s conclusion that the sale of on-going businesses had a higher rate of success
than the sale of selected assets. More recently, the FTC has stated that a mix-and-match
26
In re Valero Energy Corporation, FTC Docket No. C-4031 (Feb. 22, 2002) (Final Decision and Order) (parties
required to divest Golden Eagle refinery and related marketing assets to an approved purchaser within 12 months of
the consent), available at http://www.ftc.gov/os/2002/02/valerodo.pdf; In re Valero, L.P. and Valero Energy
Corporation, FTC Docket No. C-4141 (June 15, 2005), available at
http://www.ftc.gov/os/caselist/0510022/050615do0510022.pdf.
27
U.S. v. Premdor, Inc., Civil No.: 1:01CV01696 (D.D.C. Aug. 3, 2001) (Final Judgment), available at
http://www.usdoj.gov/atr/cases/f8900/8908.pdf (Premdor required to divest Towanda doorskin facility along with
related assets, but allowed to keep remainder of target’s North American masonite business); Justice Department
Requires Fleet Financial and BankBoston to divest 306 Branches in Four New England States, DOJ News Release,
September 2, 1999, available at http://www.usdoj.gov/atr/public/press_releases/1999/3027.pdf.
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divestiture package “may provide a sufficient” remedy, but “because these assets have never
been operated by the same owner and will likely require some reconfiguration by the buyer, it is
more difficult to determine whether the selected assets are appropriate and whether they can be
operated together effectively.”28 If an up-front buyer is proposed (that is, where merger parties
find a qualified buyer acceptable to the reviewing agency and execute an agreement for the sale
of the divestiture assets upon or very shortly after consummation of the merger), the FTC may be
more willing to accept a mix-and-match package, but it will still carefully review the buyer’s
intentions and ability to operate the assets so as to maintain competition in the market.29 An
example of a transaction in which the FTC accepted a mix-and-match remedy after the
Divestiture Study (1999) is Nestle SA’s acquisition Dreyer’s Ice Cream,30 where the divestiture
included super-premium brands of Dreyer’s and the distribution assets of Nestle to a buyer
approved by the FTC before the divestiture was completed.
The DOJ does not have a stated policy against mix-and-match proposals but if a
mix-and-match divestiture is proposed, it will still consider the alternative “clean sweep” option
and weigh the advantages and disadvantages of one over the other.31 Former Deputy Assistant
Attorney General (now FTC Chairman) Deborah Platt Majoras has stated that the
obvious advantage to requiring a clean sweep is that the sale of an ongoing business, as
opposed to various stand-alone assets pieced together, may provide greater assurance that
the assets will be viable in the hands of a suitable purchaser. Such a policy also prevents
the parties from choosing the least attractive assets from each company for divestiture -28
Frequently Asked Questions About Merger Consent Order Provisions, Federal Trade Commission, at Q.21,
available at http://www.ftc.gov/bc/mergerfaq.htm [hereinafter, “Frequently Asked Questions”].
29
Frequently Asked Questions, at Q.22.
30
In re Nestle Holding, Inc., FTC Docket No. C-4082 (Nov. 12, 2003) (Decision and Order), available at
http://www.ftc.gov/os/2003/11/0210174do.pdf.
31
Houston We Have a Competitive Problem: How Can We Remedy It?, Address by Deborah Platt Majoras,
Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice, Before the Houston Bar
Association, Antitrust & Trade Reg. Section, Houston, Texas, April 17, 2002, available at
http://www.usdoj.gov/atr/public/speeches/11112.htm.
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the so-called "cats and dogs." The potential disadvantage for requiring a clean sweep is
that it prevents the parties from realizing possible efficiencies by integrating the different
assets of both companies. 32
The balancing of the concerns about bad mix-and-match divestitures and the
desire not to eliminate efficiencies can and does lead to varying results in different industries.
There are certain industries where the agencies more consistently require the parties to eliminate
the overlap completely with a “clean sweep” divestiture. For example, the FTC generally
requires “clean sweeps” in transactions raising competitive concerns in the petroleum industry,33
while the DOJ generally requires “clean sweeps” in bank deals.34
5.
Purchasers Must be Approved by the Agencies
Given that the key to the success of the divestiture hinges upon the commitment,
experience and incentives of the buyer to use the divestiture assets to compete effectively postmerger, both the DOJ and the FTC require that the divested assets be sold to a “qualified”
purchaser approved by the agency.
Both agencies will generally allow the parties the opportunity independently to
market the assets to be divested. Once a proposed buyer is identified, each agency will conduct
an independent investigation to evaluate the proposed buyer, which often includes interviewing
the proposed buyer as well as customers, suppliers and, on occasion, competitors. The agencies
32
Id.
33
See, e.g., In re Exxon Corp., FTC Docket No. C-3907 (Nov. 30, 1999) (Agreement Containing Consent Orders),
available at http://www.ftc.gov/os/1999/11/exxonmobilagr.pdf; In re Valero Energy Corp., FTC Docket No. C4031 (Dec. 18, 2001) (Decision and Order), available at http://www.ftc.gov/os/2001/12/valerodo.pdf; In re Conoco
Inc., FTC Docket No. C-4058 (Aug. 30, 2002) (Decision and Order), available at
http://www.ftc.gov/os/2002/08/conocophillipsdo.pdf; In re Chevron Corp., FTC Docket No. C-4023 (Sept. 7, 2001)
(Decision and Order), available at http://www.ftc.gov/os/2001/09/chevtexdo.htm.
34
Justice Department Reaches Agreement with Wachovia Requiring Divestitures in Wachovia/Southtrust Merger,
DOJ News Release, Aug. 25, 2004; Justice Department Requires Wells Fargo & Co. and First Security Corp. to
Make Divestitures in Four States, DOJ News Release, Sept. 14, 2000; Justice Department Approves NBT
Bancorp/BSB Bancorp Merger After Parties Agree to a Divestiture, DOJ News Release, Aug. 15, 2000.
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often will contact or be contacted by other potential buyers. Agency staff will require the buyer
to produce financial and strategic business information as part of this review.
The two agencies apply similar tests assessing whether to approve a proposed
buyer. DOJ approval requires satisfying three fundamental tests. First, a buyer that already has
a significant presence in the relevant market often will not be deemed appropriate. Second, the
DOJ must be satisfied that the purchaser has the incentive to use the divestiture assets to compete
in the relevant market rather than for some other purpose (such as use in a different relevant
market). Third, the buyer will be subjected to a “fitness” test to ensure that the buyer has the
necessary skills, experience and financial capability to compete effectively in the market over the
long term.35 Similarly, the FTC will conduct a fact intensive evaluation focusing on the (1) the
knowledge and experience of the buyer in the relevant market, (2) the extent of the buyer’s
commitment to the market, and (3) the size of the buyer.36
Indeed, the FTC Divestiture Study goes further citing to informational and
bargaining imbalance between the divestiture seller and buyer:
Buyers who have not operated in the industry are at a severe disadvantage in
defining what assets they need and determining whether they are receiving all the
assistance to which they are entitled. Especially in orders that require the
divestiture of less than an entire business, the buyers lack important information
about the business that is being divested. This lack, this industry ignorance, is not
the result of carelessness, of a failure to perform due diligence, or of poor
judgment; it is an inherent characteristic of entering a new business.37
Based on this “severe disadvantage,” the FTC Divestiture Study goes on to recommend several
steps that should be taken to ensure that proposed buyers understand the business they are
acquiring, what they require to operate that business, and whether the sellers are providing them
35
DOJ Policy Guide, at 31-32.
36
FTC Divestiture Study, at 33-35.
37
FTC Divestiture Study, at 15.
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with the assets they need to compete in the business. The Divestiture Study notes that proposed
buyers must be given adequate time and an opportunity to conduct full due diligence. In
addition, the Study suggests:

Requiring the buyer to prepare a business plan for the assets;

Requiring the buyer to have executed supply agreements with third-parties for
the supply of necessary inputs or for the provision of services that the buyer
does not intend to perform itself; and

Making sure that the buyer understands fully the terms of the consent order so
that the buyer will know the full extent of the assets and capabilities required
to be divested.38
6.
Timing of the Divestiture
For many years, the agencies allowed merging parties to consummate their
transaction without first identifying a buyer, providing a specified period, usually of one or two
years, in which the parties were required to identify a proposed buyer and obtain agency
approval. Today, both agencies have a stated policy that the divestiture must be accomplished
quickly, so that when divestitures are allowed to be undertaken after consummation of the
merger,39 the specified period normally ranges from three to six months although there have been
instances where a shorter period is imposed,40 and there are still occasions where 12 months is
deemed acceptable.41 The particular period of time allowed for each divestiture will depend on
38
FTC Divestiture Study, at 31-33.
39
There are circumstances in which the agencies will require that the divestiture buyer be identified and approved
prior to consummation of the merger. So-called upfront buyer provisions are one of the areas of divergence in FTC
and DOJ practice discussed in the next section of this paper.
The DOJ required a divestiture within two months of the filing of its complaint in connection with Cal Dive’s
acquisition of assets from Stolt Offshore. United States v. Cal Dive International, Civil Case No.: 1:05CV02041
(D.D.C. Oct. 20, 2005) (requires the divestiture of Torch Saturation Diving System and the vessel , Midnight
Carrier, within 60 days after the complaint or within 5 days after notice of entry of a Final Judgment, whichever is
later).
40
41
In re Valero Energy Corporation, FTC Docket No. C-4031 (Feb. 22, 2002) (Final Decision and Order) (parties
required to divest Golden Eagle refinery and related marketing assets to an approved purchaser within 12 months of
the consent), available at http://www.ftc.gov/os/2002/02/valerodo.pdf
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the size and complexity of the assets being divested or whether it is believed that competitive
harm is likely to occur during the interim period. For instance, the DOJ may require a rapid
divestiture when it believes critical assets may deteriorate quickly or there will be significant
competitive harm before the assets are transferred to the purchaser.42 The FTC similarly has
stated a preference for a shorter divestiture period in order to reduce the likelihood of interim
competitive harm.43 If the parties fail to divest the assets within the specified time period, then
typical FTC and DOJ consent decrees provide for the transfer of the divestiture assets to a trustee
approved by the agency and for the sale of those assets by the trustee to an agency-approved
purchaser.44
7.
Conduct Remedies Generally Are Not Deemed Appropriate
Clients inexperienced with U.S. merger review who seriously believe that their
proposed merger is unlikely to result in anti-competitive effects have been known to ask why
they cannot simply provide the reviewing agency with a legally-enforceable promise not to raise
prices post-merger. Such provisions are invariably non-starters at both agencies -- because they
are deemed unacceptably “regulatory.” In fact, conduct restrictions generally are disfavored by
both agencies. Requiring merging parties to promise not to engage in certain conduct can be
contrary to the economic incentives of the parties and can result in market inefficiencies. The
agencies are also concerned that imposing a restriction on the parties’ future conduct will require
extensive oversight of the firm’s conduct for the term of the consent order, and embroil them in
ongoing disputes over the meaning of the conduct restrictions and how they should be
42
DOJ Policy Guide, at 30.
43
Frequently Asked Questions, at Q.13 & 30.
44
DOJ Policy Guide, at 38-39; FTC Statement, at 22. Both agencies include provisions in consent orders requiring
the trustee to use its best efforts to sell the assets at the most favorable price, but ultimately divestiture trustees are
obligated to sell the assets at any price.
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effectuated in view of changing market conditions.45 In contrast, requiring the parties to divest
assets requires no oversight once the divestiture has been accomplished.
Though disfavored, conduct fixes have been allowed by both the DOJ and FTC in
certain limited circumstances. These exceptions include where the restriction serves as an
adjunct to structural relief, as a stand-alone remedy in regulated industries, and in remedying
concerns regarding vertical mergers.
Conduct relief is often used by both agencies to enhance the effectiveness of
structural relief.46 An example is where a purchaser is unable to produce a product during a
transitional period because the relevant production assets in a multi-purpose plant need to be
stripped out and moved to another location or part of the plant. In such cases, a consent decree
may require the seller to enter into a short-term supply agreement with the buyer, which can help
prevent the loss or weakening of the divested assets during the transitional period.47 FTC
consents typically prohibit sellers from soliciting certain employees -- for example, key
employees or employees with critical know-how -- that have been transferred with the business
for a period of time.48 Finally, the agencies may require conduct relief as an adjunct to structural
45
DOJ Policy Guide, at 8-9.
46
DOJ Policy Guide, at 18-20; see also Statement of Chairman Robert Pitofsky and Commissioner Mozelle W.
Thompson, Concurring in Part and Dissenting in Part, BP Amoco plc/Atlantic Richfield Co. FTC Docket No. C3938 (August 29, 2000) (“precedent establishes that conduct relief ancillary to structural relief may be appropriate in
a merger case to address related competitive concerns, even when the conduct restriction may, in doing so, restrain
some lawful conduct.”), available at http://www.ftc.gov/os/2000/04/bpamstatepitthomp.htm.
For example, in connection with Nestle Holdings’ acquisition of Dreyer’s Ice Cream, Dreyers was required to
supply premium ice cream products -- the products being divested -- to the buyer for one year to enable the buyer to
have products to sell immediately following the divestiture. In re Nestle Holding, Inc., FTC Docket No. C-4082
(Nov. 12, 2003) (Decision and Order), available at http://www.ftc.gov/os/2003/11/0210174do.pdf.
47
48
See, e.g., In re Pfizer, Inc., FTC Docket No. C-4075 (May 30, 2003) (Final Decision and Order) (Pfizer and
Pharmacia were prohibited from soliciting employees who had responsibilities relating to the femhrt assets
(hormone replacement therapy) from the divestiture buyer (Galen Holdings) for one year following the divestiture),
available at http://www.ftc.gov/os/2003/05/pfizerdo.pdf.
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relief to eliminate barriers to entry within a market.49 FTC Chairman Deborah Platt Majoras has
also recently noted that conduct relief is often required as an adjunct in mergers involving the
divestiture of intellectual property assets, because the divesting party may need to retain rights to
the intellectual property so it can continue to operate in product lines that did not raise
competitive issues.50
Though “rare,” stand-alone conduct relief has been used in regulated industries.51
Conduct relief may be allowed in regulated industries because the merging firms are already
subject to significant monitoring and supervision by a governmental agency that has considerable
expertise in the industry. Consequently, conduct relief has been permitted in mergers involving
firms in the telecommunications and defense industries in view of significant regulatory
oversight by the Federal Communications Commission and the Department of Defense,
respectively. Such relief is accepted only after the FTC or DOJ has worked closely with and
49
For example, in U.S. v. Waste Industries USA, Inc., Civ. No. 2:05CV468 (E.D. Va. Aug. 8, 2005) (Proposed
Final Order), available at http://www.usdoj.gov/atr/cases /f210500/210521.htm, the DOJ contended that Waste
Industries USA, Inc. and Allied Waste Industries, Inc. were two of four significant waste collection services
providers in certain local geographic markets. In addition to requiring the merging parties to divest small container
commercial waste hauling assets, the proposed consent decree also requires Waste Industries to shorten its existing
and future contracts for small container commercial waste-hauling services. In the Nestle SA and Dreyer’s Ice
Cream transaction, in addition to requiring the divestiture of ice cream brands and related assets and distribution
assets, the FTC required Dreyer’s to modify a joint venture agreement between Dreyer’s and Starbucks to make it
non-exclusive and allow Starbucks to manufacture, distribute and sell ice cream outside of the joint venture
agreement. In re Nestle Holding, Inc., FTC Docket No. C-4082 (Nov. 12, 2003) (Decision and Order), available at
http://www.ftc.gov/os/2003/ 11/0210174do.pdf.
50
The United States Federal Trade Commission Promotes Better Markets and Better Choices: A Look at Health
Care and Financial Services, Remarks by Deborah Platt Majoras, Chairman, United States Federal Trade
Commission, European Competition and Consumer Day “Better Markets, Better Choices,” September 15, 2005, at
4-5 & n.7, available at http://www.ftc.gov/speeches/majoras/050915ukcompday.pdf. Another example is the FTC’s
consent order in connection with Novartis AG’s acquisition of Eon Labs, Inc., where in addition to requiring
Novartis to divest three generic drugs, Novartis was required to enter into a supply agreement with the divestiture
purchaser until the purchaser obtained FDA approval to manufacture the products on its own. In re Novartis AG,
FTC File No. 051 0506 (July 19, 2005) (Decision and Order), available at http://www.ftc.gov/os/caselist
/0510106/050719do0510106.pdf.
51
DOJ Policy Guide, at 20.
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obtained significant input from the relevant regulatory agency in connection with the design and
implementation of the consent decree.
Finally, conduct relief has been used in addressing the competitive issues raised
by vertical mergers. There are several reasons why it is more common to find conduct relief in
vertical mergers than in horizontal transactions. Vertical mergers often involve a scenario where
a formerly independent buyer of a critical input acquires the producer of the input, vertically
integrating into one firm a customer and a supplier. In such a transaction, the potential exists for
the newly vertically integrated firm to raise the price of a critical input to the customer’s rivals.
On the other hand, the merger can result in significant cost savings that would benefit consumers
in the form of price decreases or quality improvements, and the prospects of obtaining an
injunction blocking the entire deal may be low.52 Often justifiably reluctant to preclude such
mergers outright, the agencies are more amenable to the imposition of conduct relief so that the
efficiencies can be realized while the potential for anti-competitive harm is addressed.53
There are many types of conduct relief that can be imposed to resolve perceived
anticompetitive effects of vertical mergers. Firewalls and fair dealing provisions are frequently
That is not to say that there have not been successful attempts to block vertical mergers outright. For example,
the FTC voted to block Cytyc’s acquisition of Digene, and the parties ultimately abandoned the deal. Digene was
the only company in the U.S. selling a DNA-based test for identifying cervical cancer, and Cytyc accounted for 93%
of the sales of all liquid-based Pap tests used for screening for cervical cancer. Manufacturers of liquid Pap tests had
to have access to Digene's HPV test. By acquiring Digene, Cytyc would have been in a position to foreclose its only
existing competitor by limiting access to Digene's HPV test. FTC Seeks to Block Cytyc Corp.’s Acquisition of
Digene Corp., FTC News Release, June 24, 2002. Another example where the FTC voted to block a vertical merger
was in connection with Barnes & Noble’s acquisition of Ingram Book Group, a book distributor whose main
clientele are independent booksellers, the main competitors to Barnes & Nobles. After the FTC commenced a
preliminary injunction proceeding, the parties abandoned the deal. Stephen Labaton & Doreen Carvajal, Book
Retailer Ends Bid for Wholesaler, NY Times, June 3, 1999.
52
53
DOJ Policy Guide, at 20-22; Prepared Statement of the Federal Trade Commission, Presented by Robert Pitofsky,
Chairman, Before the Committee on the Judiciary, Subcommittee on Antitrust, Business Rights, and Competition,
the U.S. Senate, July 24, 1997.
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included in vertical merger consent orders by both agencies.54 Firewalls prevent the
dissemination of confidential and competitively sensitive information about rivals within the
merged entity.55 Fair dealing provisions require the acquirer to provide equal access to or not to
discriminate against non-vertically integrated rivals.
V.
Differences Between the DOJ and the FTC
While there are many similarities in merger remedies policy and practice, there
are significant differences between the DOJ and FTC that can and not infrequently do have a real
world impact on how quickly merging parties can complete their transaction and achieve the procompetitive efficiencies of their transactions. These include:

whether the divestiture buyer needs to be identified and approved before the
transaction is consummated (so-called “upfront buyer” provisions);

whether it is possible for merger parties to avoid the imposition of a consent
decree by restructuring transactions on their own before the merger is
completed (known as “fix-it-first” remedies);

whether to include in the consent order a provision requiring the divestiture of
additional, strategically-important assets if the principal divestiture to an
approved buyer is not completed in the manner or within the time frame
contemplated under the consent order (so-called “crown jewel provisions”);
and

whether to appoint an interim trustee to monitor compliance with the hold
separate and related provisions of consent orders during the period after the
consent order has been signed but before divestiture has taken place.
A. Upfront Buyer Provisions
54
See generally In re Silicon Graphics, Inc., 120 F.T.C. 928 (1995) (consent decree contained firewall and fair
dealing provisions); In re Ceridian, FTC Docket No. C-3933 (September 29, 1999) (consent decree contained
firewall and fair dealing provisions), available at http://www.ftc.gov/os/2000/04/ceridian.do.htm; United States v.
Northrop Grumman Corp, Civil No: 1:02CV02432 (D.D.C. Dec. 11, 2002) (consent decree contained firewall and
fair dealing provisions), available at http://www.usdoj.gov/atr/cases/f201000/201076.htm.
Most recently, in In re Allergan, the FTC required the parties to divest Inamed’s pipeline Botox-type product,
Reloxin, but also required the parties to take specific steps to ensure that all confidential information relating to the
development of Reloxin would be transferred to the purchaser and would not be used by Allergan or Inamed in the
future. In re Allergan, File No., 061 0031 (FTC Mar. 8, 2006) (consent order),
http://www.ftc.gov/os/caselist/0610031/0610031AllerganInamedDecisionOrder_PR.pdf.
55
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Under up-front buyer provisions, the merger parties are forced to find a qualified
buyer that is acceptable to the reviewing agency and to execute an agreement for the sale of the
divestiture assets to occur upon or very shortly after consummation of the merger. Agency
insistence on an up-front buyer provision often causes delay of several months in completing the
merger depending upon how long it takes to find a buyer and negotiate a contract of sale
acceptable to the reviewing agency.
The agencies differ in their policies on upfront buyers. The FTC uses upfront
buyer provisions frequently. The DOJ tends not to employ such provisions.
In public statements, the FTC has articulated a preference for an upfront buyer
when the parties are divesting a package of assets that has not previously operated as an
autonomous business.56 By requiring an up-front buyer, the FTC “seeks to minimize the risks
that there will not be an acceptable buyer for . . . a limited package of assets or that the buyer will
not be able to maintain or restore competition.”57 The FTC staff frequently expresses concern
that it does not have the resources and capability to determine in advance whether the proposed
divestiture package includes all the assets needed for the divestiture buyer to be successful.
A review of consent orders confirms that the FTC has frequently used upfront
buyer provisions in cases involving divestitures of assets that had not previously operated as a
separate business. For example, an upfront buyer was required in connection with Allergan’s
acquisition of Inamed Corporation in 2006,58 Procter & Gamble’s acquisition of the Gillette
FTC Statement, at 11. “If the parties seek to divest a package of assets comprising less than an autonomous, ongoing business, the Bureau will usually require an up-front buyer.” Id.
56
57
FTC Statement, at 11.
58
In re Allergan, File No., 061 0031 (FTC Mar. 8, 2006) (consent order),
http://www.ftc.gov/os/caselist/0610031/0610031AllerganInamedDecisionOrder_PR.pdf; accord In re Johnson &
Johnson, File No. 051 0050 (FTC ) (Analysis to Aid Public Comment) (upfront buyers required for each of the three
divestitures), available at http://www.ftc.gov/os/caselist/0510050/051102anal0510050.pdf; In re Teva
Pharmaceutical, File No. 051 0214 (FTC Jan. 23, 2006) (Analysis) (appointing interim monitor to oversee transfer
of assets), available at http://www.ftc.gov/os/caselist/0510214/0510214analysis.pdf.
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Company in 2005,59 Novartis AG’s acquisition of Eon Labs. in 2005,60 Itron Inc.’s acquisition of
Schlumberger Electricity in 2004,61 GE’s acquisition of Agfa-Gevaert N.V.’s non-destructive
testing equipment business in 2003,62 Nestlé Holding, Inc’s acquisition of Dreyer’s ice cream
business in 2003,63 the merger between Conoco, Inc. and Philips Petroleum Company in 2002,64
Lafarge SA’s acquisition of Blue Circle Industries plc in 2001,65 and the acquisition by Valspar
Corporation of Lilly Industries in 2000.66
59
In re Procter & Gamble, FTC Docket No. C-4151 (Sept. 30, 2005) (Decision and Order) (non-rechargeable
battery powered toothbrushes – Crest SpinBrush business -- required to be divested to Church & Dwight), available
at http://www.ftc.gov/os/caselist/0510051/051004do0510051.pdf.
60
In re Novartis AG, FTC File No. 051 0506 (July 19, 2005) (Decision and Order) (three overlapping generic drugs
required to be divested to Amide Pharmaceutical, Inc.), available at http://www.ftc.gov/os/caselist
/0510106/050719do0510106.pdf.
61
In re Itron, Inc., File No. 031-0201 (June 3, 2004) (Itron required to grant a royalty-free perpetual license for
Itron’s mobile RF AMR technology to Hunt Technologies), available at http://www.ftc.gov/os/caselist/
0310201/040810do0310201.pdf.
62
In re General Electric Co., FTC Docket No. C-4103 (Dec. 18, 2003) (Decision and Order) (GE required to divest
its worldwide Panametrics ultrasonic non-destructive testing equipment business to R/D Tech Inc.), available at
http://www.ftc.gov/os/caselist/0310097/0310097do031218.pdf.
63
In re Nestle Holding, Inc., FTC Docket No. C-4082 (Nov. 12, 2003) (Decision and Order) (ice cream and fruit
bar assets and distribution assets required to be divested to Coolbrands), available at
http://www.ftc.gov/os/2003/11/0210174do.pdf. In 2003, the FTC also required upfront buyers in connection with
Wal-Mart Stores’ acquisition of Supermercados Amigo, In re Wal-Mart Stores, Inc., FTC Docket No. C-4066 (Feb.
27, 2003) (four Amigo stores to Supermercados Maximo), available at
http://www.ftc.gov/os/2002/11/walmartamigodo.pdf; Baxter International’s acquisition of Wyeth, In re Baxter
International, Inc., FTC Docket No. C-4068 (Feb. 3, 2003) (propofol assets to Faulding Pharmaceutical Co.),
available at http://www.ftc.gov/os/2002/12/baxter_wyethdo.pdf; Dainippon Ink and Chemicals acquisition of high
performance pigments business of Bayer Corporation, FTC Docket No. C-4073 (March 13, 2003) (Decision and
Order) (perylene assets to be divested to Ciba Specialty Chemicals), available at
http://www.ftc.gov/os/2003/01/dainippondo.htm; and Quest Diagnostic’s acquisition of Unilab Corporation, FTC
Docket No. C-4074 (April 3, 2003) (Decision and Order) (requiring divestiture of laboratory services assets to
LabCorp), available at http://www.ftc.gov/os/2003/02/questdo.htm. In fact, in 2003, virtually all FTC consent
orders required upfront buyers.
64
In re Conoco Inc, FTC Docket No. C-4508 (August 30, 2002) (Decision and order), available at
http://www.ftc.gov/os/2002/08/conocophillipsdo.pdf.
65
In re Lafarge SA, FTC Docket No. C-4014 (Aug. 10, 2001) (Decision and Order), available at
http://www.ftc.gov/os/2001/08/lafargesado.htm.
66
In re Valspar Corporation, FTC Docket No. C-3995 (Jan. 30, 2001) (Final Decision and Order), available at
http://www.ftc.gov/os/2001/01/valspardo.pdf.
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In contrast, the DOJ has no stated preference for upfront buyer provisions. The
DOJ Policy Guide is silent on the question. When Deborah Majoras was Deputy Assistant
Attorney General at the DOJ, she responded to a question regarding the DOJ’s policy by saying
that “[u]pfront buyers have not been, and are not today, a requirement.”67
B. Fix it First Remedies
For strategic or other business reasons, merger parties may wish to restructure
their transaction to eliminate antitrust issues at the outset or, if during the course of agency
review, prior to the filing of an agency complaint in a judicial or administrative forum. Such
voluntary restructuring of a merger may involve the sale of a subsidiary, business unit, division
or some other package of assets to a third-party that the merger parties believe should eliminate
any potential competitive problems resulting from the proposed merger. The attempt to redress
potential anticompetitive problems without the imposition of a consent decree is known as a “fixit-first” approach. The DOJ and the FTC differ in their views of fix-it-first remedies.
The DOJ has stated that it “does not discourage acceptable fix-it-first remedies.”68
So long as the “fix” preserves and restores competition to the pre-merger level, thereby
remedying fully the competitive problems caused by the merger, the DOJ “will forego filing a
case and conclude its investigation without imposing additional obligations on the parties.”69
When a fix-it-first approach is pursued by the merger parties, the DOJ may limit its investigation
to determining whether the contemplated disposition to the buyer in question will remedy any
67
Interview with Deborah Majoras, Deputy Assistant Attorney General, U.S. Department of Justice, Antitrust
Division, The Antitrust Source, March 2002, at 10; see also Houston We Have a Competitive Problem: How Can
We Remedy It?, Address by Deborah Platt Majoras, Deputy Assistant Attorney General, Antitrust Division, U.S.
Department of Justice, Before the Houston Bar Association, Antitrust & Trade Reg. Section, Houston, Texas, April
17, 2002, available at http://www.usdoj.gov/atr/public/speeches/11112.htm.
68
DOJ Policy Guide, at 26.
69
DOJ Policy Guide, at 27.
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likely competitive harms otherwise expected to arise from the merger, thereby streamlining the
merger review process.
In contrast, the FTC generally disfavors a fix-it-first approach, and often insists on
the execution of a consent decree because this gives the FTC a greater say in the selection of the
divestiture assets and buyer and the implementation of the divestiture. One example where the
FTC required the parties to enter into a consent order even after they had restructured their
transaction is the transaction between Buckeye Partners and Shell Oil Company. Buckeye was
acquiring from Shell a package of refined petroleum pipeline and terminal assets.70 To address
FTC competitive concerns, the parties restructured the transaction to exclude a refined petroleum
terminal located in Niles, Michigan that had initially been included in the deal. The consent
order required Buckeye to notify the FTC of any intention to acquire an interest in the Niles
terminal and required Shell to notify the FTC of any intention to sell any interest in that terminal,
both for a period of ten years.71 The DOJ has chosen not to take action in view of fix-it-first
remedies on any number of occasions that would appear to be similar.72
70
In re Buckeye Partners, File No. 041 0162 (Sept. 27, 2004) (Analysis of Proposed Agreement Containing
Consent Order to Aid Public Comment), available at
http://www.ftc.gov/os/caselist/0410162/040927anal0410162.pdf.
71
In re Buckeye Partners, FTC Docket No. C-4127 (Dec. 17, 2004) (Decision and Order), available at
http://www.ftc.gov/os/caselist/0410162/041221do.pdf. Another instance where the FTC required a consent order
even after the parties agreed to restructure their agreement is in connection with Deutsche Gelatine-Fabriken Stoess
AG’s (“DGF”) acquisition of the gelatin business from Goodman Fielder Ltd. (“Goodman”). There, following the
FTC’s rejection of the parties’ initial divestiture proposal, the parties agreed to restructure their deal so that
Goodman would retain two gelatin plants, its only plants in the U.S. and Argentina, and thus would stay in the
gelatin business in competition with DGF. The FTC required a consent order to memorialize the retention of these
plants by Goodman and to address any potential future sales of these plants by Goodman to other parties. In re
Deutsche Gelatine-Fabriken Stoess A.G., FTC Docket No. C-4045 (Mar. 7, 2002) (Decision and Order), available at
http://www.ftc.gov/os/2002/03/deutschedo.htm.
See, e.g., Reuters Ltd. and Mondeyline Telerate Restructure Proposed Deal to Alleivate Justice Department’s
Antitrust Concerns, DOJ, Press Release, May 24, 2005; Fox Paine Restructures One of its Two Alaskan
Telecommunications Acquisitions to Address Justice Department’s Antitrust Concerns, DOJ Press Release, May 7,
1999.
72
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Recently, the FTC withdrew its complaint and terminated its lawsuit for
injunctive relief after the parties entered into a fix.73 In particular, Aloha Petroleum and
Trustreet entered into an agreement whereby Aloha would acquire the remaining 50% interest
from Trustreet in a gasoline terminal in Oahu, Hawaii, and 15 of Trustreet’s gas stations. The
FTC filed a complaint on July 27, 2005, in federal district court in Hawaii, seeking to enjoin that
acquisition on two counts: loss of competition in the bulk supply of gasoline and loss of
competition in the retail sale of gasoline. Following several weeks of litigation, on September 6,
2005, the FTC announced that it had withdrawn its complaint after Aloha entered into a 20-year
throughput agreement with an independent gasoline jobber. According to the FTC’s Press
Release, the FTC viewed the throughput agreement as “essentially substitut[ing] [the
independent jobber] for Trustreet.” No consent decree was required.
Of course, neither agency will refrain from challenging a merger deemed likely to
cause anticompetitive effects when a purported “fix” is deemed insufficient, even if it has
already been put in place. For example, in 2000, the DOJ successfully challenged a proposed
joint venture that would have combined the submersible turbine pump (“STB”) businesses of
Franklin Electric Company and United Dominion Industries, the only two companies in the
United States in this business. The DOJ prevailed despite the existence of a fix-it-first remedy.
The joint venture agreement provided that the parties would enter into a licensing agreement
with a third-company, Environ, that was in a related business, whereby Environ would have
access to all of United Dominion’s STP intellectual property and would have the contractual
right to purchase United Dominion STP product and sell it under its own name for two years.
The DOJ was able to convince a federal district court that the licensing agreement was
73
In re Aloha Petroleum, File No. 051 0051 (FTC Sept. 6, 2005) (Press Release), available at
http://www.ftc.gov/opa/2005/09/alohapetrol.htm.
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inadequate to restore competition, and the court enjoined the parties from proceeding with the
joint venture.74
The FTC has sought to go beyond the DOJ position by arguing that in FTC cases
seeking preliminary injunctions against mergers, district courts should ignore fix-it-first
provisions put in place unilaterally by the parties The federal courts have tended to consider the
fix-it-first remedies over the FTC’s objection, but with mixed results.
The FTC’s challenge last year to Arch Coal’s acquisition of Triton Coal assets
from New Vulcan Coal Holdings is a recent example.75 The FTC sought a preliminary
injunction to block the acquisition after Arch Coal entered into a firm purchase and sale
agreement for the sale of one of Triton’s Tier 3 coal mines, Buckskin, to Peter Kiewit Sons, a
large mining company with mining interests outside the relevant geographic area. 76 The FTC’s
case was based on concern that the merger would produce coordinated effects in the market by
reducing the number of significant industry participants from five to four -- but the divestiture
restored the number of participants to five. Rejecting the FTC’s argument that it should only
consider the transaction prior to the parties’ self-imposed “fix,” the district court ultimately
concluded that the FTC had not met its burden of proving that the transaction was likely to
substantially lessen competition relying in part on the fact that the transaction had been
restructured.77
A district court also considered a restructured transaction over the FTC’s
objection in the FTC’s 2001 challenge to Libbey’s proposed acquisition from Newell
74
United States v. Franklin Electric Co., 130 F.Supp.2d 1025 (W.D. Wis. 2000).
75
Federal Trade Commission v. Arch Coal, Inc., 329 F.Supp.2d 109 (D.D.C. 2004).
76
Id.
77
In re Arch Coal, Inc., Docket No. 9316/File No. 031-0191 (June 13, 2005) (Statement of the Commission),
available at http://www.ftc.gov/os/adjpro/d9316/050613commstatement.pdf.
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Rubbermaid of Anchor Hocking, one of Libbey’s few competitors in food service glassware.
After the FTC authorized its staff to seek a preliminary injunction blocking the deal on the
ground that the acquisition would enable Libbey to exercise market power in the food service
glassware market, the parties amended their merger agreement to exclude most but not all of the
Anchor Hocking food service business. The district court rejected the FTC’s contention that the
restructured agreement should not be considered, but nonetheless found that the FTC had carried
its burden of showing a probability of success on the merits that the acquisition would
substantially lessen competition despite the parties’ fix.78
C. Crown Jewel Provisions
The DOJ and the FTC appear to have differing views about so-called crown jewel
provisions in consent decrees. Crown jewel provisions allow the reviewing agency to sweeten
the package initially required to be divested by requiring merging parties to divest additional or
different assets in the event the parties fail to divest the initial divestiture package as
contemplated under, or within the time period specified in, the consent order. Examples of
crown jewel provisions include adding more production facilities or retail outlets or even
requiring the parties to divest the larger of two overlapping businesses if the smaller one has not
been sold.
The DOJ strongly disfavors crown jewel provisions because “they represent
acceptance of either less than effective relief at the outset or more than is necessary to remedy
the competitive problem.”79 Indeed, the DOJ believes that crown jewel provisions may facilitate
manipulation of the process by divestiture buyers: “If there are only a few potential purchasers
and they are aware of the crown jewel provision in the decree, they may intentionally delay
78
FTC v. Libbey, Inc., 211 F.Supp.2d 34 (D.D.C. 2002).
79
DOJ Policy Guide, at 37.
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negotiating for the agreed-upon divestiture assets so that they may later purchase the crown
jewels at an attractive price.”80
The FTC does not appear to have such an institutional view against using crown
jewel provisions. To the contrary, the FTC has a long history of using crown jewel provisions
starting with occasional uses as early of the 1980s.81 And after reviewing consents during the
early to mid-90s, two experienced observers noted a “distinct shift” toward the inclusion of
crown jewel provisions in consents, indicating at that time a “true policy change” at the FTC.82
In fact, this trend was confirmed in the 1997 FTC Divestiture Study which stated, among other
things, that crown jewel provisions may make divestiture assets more saleable potentially
enlarging the pool of potential buyers.83
Crown jewel provisions were also said to have had a salutary impact on the
incentives of the divestiture seller in the FTC Divestiture Study. In particular, one of the
divestiture sellers cited in the FTC Divestiture Study “appears to have been much more rigorous
in its adherence to the terms of the hold separate agreement” than other firms were, and the FTC
80
Id. at 38.
81
FTC Divestiture Study, at 5 (citing Texaco, Inc. FTC Docket No. C-3137, 104 F.T.C. 241 (1984) (Decision and
Order); Chevron Corp., et al., FTC Docket No. C-3147, 104 F.T.C. 597 (1984) (Decision and Order); modified, 105
F.T.C. 228 (1985); In re L’Air Liquide, SA, FTC Docket No. C-3216, 110 F.T.C. 19 (1987) (Decision and Order),
modified, 111 F.T.C. 135 (1988), further modified, 117 F.T.C. 473 (1994), set aside, 121 F.T.C. 95 (1966);
Supermarket Development Corp., FTC Docket No. C-3224, 110 F.T.C. 369 (1988) (Decision and Order), modified,
117 F.T.C. 473 (1994), further modified, 130 F.T.C. 613 (1995)).
Carl Shapiro & Michael Sohn, “Crown Jewel” Provisions in Merger Consent Decrees, Antitrust, Fall 1997, at 29
(discussing several consent orders from the 1990s with crown jewel provisions). Additional decrees with crown
jewel provisions are Phillips/ANR, FTC Docket No. C-3728 (Dec. 30, 1996) (Decision and Order) (additional gas
gathering assets in the relevant geographic area), available at http://www.ftc.gov/os/caselist/c3728.htm;
Mahle/Metal Leve, FTC Docket No. C-3746 (Feb. 27, 1997) (Decision and Order) (additional assets, up to and
including the entire worldwide Metal Leve piston business), available at
http://www.ftc.gov/os/1997/02/mahlemet.pdf; Tenet/OrNda, FTC Docket No. C-3743 (Jan. 29, 1997) (Decision and
Order) (OrNda's Valley Community Hospital located in nearby Santa Maria), available at
http://www.ftc.gov/os/1997/01/tenet.pdf; and AHP/Solvay, FTC File No 971 0009 (Feb. 25, 1997) (Agreement
Containing Consent Order) (Solvay's Iowa manufacturing plant and equine vaccines), available at
http://www.ftc.gov/os/1997/02/amhosolv.htm.
82
83
FTC Divestiture Study, at 30
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posits that “[o]ne reason may have been that [the firm] that divested to [the buyer] was subject to
a crown jewel and the [firms] that divested to [other buyers] [were] not.”84 The FTC Divestiture
Study further noted that:
It appears that [the divestiture buyer, known as] Firm 30, and probably many
others, benefited from the existence of a crown jewel provision. It created an
incentive within the [selling firm] to make the order work in the way intended by
the Commission. Rather than indifference or hostility that is exhibited by some
[selling firms], this [selling firm] had an internal reason to see the divestiture
succeed.85
The FTC has included crown jewel provisions in consent decrees since the
publication of the 1999 Divestiture Study.86 In the formation of a joint venture by Phillips
Petroleum Company and Duke Energy Corporation, the consent decree entered in 2000 provided
that, if Duke failed to sell the 537 miles of pipeline for which a buyer was not identified up-front,
then Duke would be required to offer additional assets for sale.87 In the 2002 merger of Hoechst
AG and Rhone Poulenc SA (renamed Aventis), the FTC required the parties to divest the “crown
jewel” assets.88 In the 2003 merger of Quest Diagnostics Inc. and Unilab Corporation, the
consent decree provided that in the event Quest failed to carry out the divestiture of certain
outpatient laboratory assets in Northern California, the appointed trustee then would have the
option of selling Quest’s entire laboratory services business in Northern California.89
84
FTC Divestiture Study, at 31.
85
FTC Divestiture Study, at 31.
86
See generally Frequently Asked Questions, at Q.24 – 27.
87
In re Duke Energy Corporation and Phillips Petroleum Company, C-3932 (May 9, 2000) (Decision and Order),
available at http://www.ftc.gov/os/2000/05/dukephillips.do.htm.
88
In re Aventis, FTC Docket No. C-3919 (March 14, 2002) (Order Reopening and Modifying Prior Order),
available at http://www.ftc.gov/os/caselist/c3919.htm (FTC made use of a crown jewel provision to require the
divestiture of alternate assets, and appointed a trustee to accomplish that divestiture, when respondent failed to
divest the original assets on time).
89
In re Quest Diagnostics Inc., FTC Docket No. C-4074 (April 3, 2003) (Decision and Order, at p.10), available at
http://www.ftc.gov/os/2003/04/questdo.pdf.
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Today, the FTC’s affinity for crown jewel provisions may be on the decline.
Current FTC Chairman Deborah Platt Majoras stated in a presentation a year ago that, in
practice, she believed the “supposed difference” in approaches between the FTC and the DOJ
relating to the inclusion of “crown jewel” provisions are “overblown” since “very few of the
FTC’s recent merger cases have been resolved with crown jewel provisions.”90
D. Monitor Trustees
When a divestiture will take place after the parties have consummated their
merger, both agencies require that the parties hold the divestiture assets separate and maintain
them in the ordinary course so that a viable business can be divested. Consent orders entered
into with the DOJ typically contain an obligation to preserve assets, generally requiring the
parties to take all steps necessary to preserve the divestiture assets and not to take any actions
that would jeopardize the divestiture. The FTC imposes similar requirements. While both
agencies require the parties to enter into hold separate orders, the agencies diverge with respect
to the appointment of interim trustees.
The FTC increasingly has included provisions in consent orders for the
appointment of an interim trustee, sometimes known as a “hold-separate trustee,” to monitor
compliance with the divestiture obligations and/or to oversee the operation of the held-separate
business.91 The FTC regards the interim trustee as “the ‘eyes and ears’ of the Commission and
its staff, raising issues with the staff as they arise.”92
90
Looking Forward: Merger and Other Policy Initiatives at the FTC, Remarks by Deborah Platt Majoras,
Chairman, Federal Trade Commission, ABA Antitrust Section Fall Forum, November 18, 2004, at 10, available at
http://www.ftc.gov/speeches/majoras/041118abafallforum.pdf.
91
In re Occidential Petroleum Corp., FTC Docket No. C-4139 (June 3, 2005) (Analysis to Aid Public Comment)
(“the Commission appoints Richard M. Klein as Monitor Trustee”), available at http://www.ftc.gov/os/caselist
/0510009/050603anal0510009.pdf; In re General Electric Company, FTC Docket No. C-4119 (Oct. 24, 2004)
(Decision and Order) (Monitor trustee provision in consent order requiring divestiture of InVision’s xylon nondestructive testing business), available at http://www.ftc.gov/os/caselist /0410106/041029do0410106.pdf; In re
General Electric Company, FTC Docket No. C-4103 (Jan. 28, 2004) (Decision and Order) (Monitor trustee
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The FTC has even included such interim trustee provisions in consent decrees in
which a buyer has been identified and the divestiture will take place very shortly after
consummation of the deal (for example, 10 days after the closing). For instance, in the Nestle
SA/Dreyer’s Ice Cream transaction, the FTC required the divestiture of a trio of ice cream brands
as well as distribution assets to Coolbrands. The consent order allowed the FTC to appoint an
interim monitor if necessary,93 although the FTC ultimately chose not to do so. While the FTC
almost routinely includes a provision authorizing the appointment of an interim trustee in its hold
separate orders,94 as shown by the transaction above, the FTC does not necessarily appoint an
interim monitor in every case. Some examples of transactions in which the FTC did appoint an
interim monitor are the divestiture by Allergan and Inamed of Inamed’s pipeline Botox-type
product, Reloxin,95 Occidental Petroleum Corporation’s acquisition of Vulcan Materials,96 GE’s
provision in consent order requiring divestiture of Panametric ultrasonic NDT business), available at
http://www.ftc.gov/os/caselist/0310097/0310097do031218.pdf; In re Baxter International, FTC Docket No. C-4068
(Feb. 3, 2003) (Decision and Order) (Monitor trustee provision in consent order requiring divestiture of
pharmaceutical products), available at http://www.ftc.gov/opa/2003/02/baxterwyethdo.htm; In re Dainippon Ink &
Chemicals, Inc., FTC Docket No. C-4073 (Jan. 31, 2003) (Decision and Order) (Monitor trustee provision in
consent order requiring divestiture of perylene assets), available at http://www.ftc.gov/os/2003/03/dainippondo.pdf.
92
FTC Statement, at 19-20.
93
In re Nestle Holding, Inc., FTC Docket No. C-4082 (Nov. 12, 2003) (Decision and Order), 0available at
http://www.ftc.gov/os/2003/ 11/0210174do.pdf.
94
See, e.g., In re INA-Holding Schaeffler KG, FTC Docket No. C-4033 (Feb. 15, 2002) (Order to Maintain Assets),
available at http://www.ftc.gov/os/2001/12/inafagoma.pdf;
95
In In re Allergan, the FTC appointed an interim monitor to oversee the divestiture by Allergan and Inamed of
Inamed’s pipeline Botox-type product, Reloxin. The parties were obligated to make the divestiture within 20 days
from the closing on the acquisition. In re Allergan, File No., 061 0031 (FTC Mar. 8, 2006) (consent order),
available at http://www.ftc.gov/os/caselist/0610031/0610031AllerganInamedDecisionOrder_PR.pdf; accord In re
Johnson & Johnson, File No. 051 0050 (FTC ) (Analysis) (appointing interim monitor), available at
http://www.ftc.gov/os/caselist/0510050/051102anal0510050.pdf; In re Teva Pharmaceuticals, File No. 051 0214
(FTC Jan. 23, 2006) (Analysis) (appointing interim monitor to oversee transfer of assets), available at
http://www.ftc.gov/os/caselist/0510214/0510214analysis.pdf.
96
In re Occidential Petroleum Corp., FTC Docket No. C-4139 (June 3, 2005) (Analysis to Aid Public Comment)
(“the Commission appoints Richard M. Klein as Monitor Trustee”), available at
http://www.ftc.gov/os/caselist/0510009/050603anal0510009.pdf.
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acquisition of InVision Technologies,97 and Diageo plc’s and Pernod Ricard S.A.’s acquisition of
the spirits and wine business from Vivendi Universal S.A.98
In contrast, the DOJ appears to use interim trustees less frequently. In its Policy
Guide, the DOJ has stated that it may require an operating trustee “in the rare” circumstances
where the DOJ has reason to believe that the defendant is likely to mismanage the assets,
impairing their value, during the divestiture period.99 The DOJ also might require a monitoring
trustee when such trustee’s expertise is critically important to an effective divestiture.100 For
example, “expert” monitoring trustees appear to be more typical in high tech industries, such as
the telecommunications industry, where technological expertise that the DOJ does not have is
necessary to the implementation of the consent order. Consequently, in connection with Alltel
Corporation’s acquisition of Western Wireless Corporation, the DOJ required the appointment of
a monitoring trustee to monitor the divestiture assets during the pendency of the ordered
divestiture. In its Competitive Impact Statement, the DOJ noted that this was “a unique
situation” because the divestiture assets “are not independent facilities that can be held separate
and operated as standalone units” but rather the assets “are an integral part of a larger network,
and [to] maintain their competitive viability and economic value” it was necessary that they
should remain part of that network during the interim period.101 Similarly, where the divestiture
97
In re General Electric Company, FTC Docket No. C-4119 (Oct. 24, 2004) (Analysis to Aid Public Comment)
(appointing Hartmut G. Grossman to oversee the xylon NDT business), available at http://www.ftc.gov/os/caselist
/0410106/040915anl0410106.pdf.
In re Diageo plc, FTC Docket No. C-4032 (Dec. 19, 2001) (Analysis to Aid Public Comment) (“the Commission
has appointed Theodore F. Martens of PriceWaterhouseCoopers LLP as an interim monitor.”), available at
http://www.ftc.gov/os/2001/12/diageovivendianalysis.htm.
98
99
100
DOJ Policy Guide, at 40.
DOJ Policy Guide, at 40-41.
101
U.S. v. Alltel Corp., Case No.: 1:05CV01345 (D.D.C. July 6, 2005) (Competitive Impact Statement, at 15),
available at http://www.usdoj.gov/atr/cases/f209900/209992.pdf. A management trustee was also required in
connection with the merger of AT&T Wireless Services and Cingular Wireless Corporation. U.S. v. Cingular
Wireless Corporation, Civil No. 1:04CV01850 (D.D.C. October 25, 2004) (Competitive Impact Statement, at 1617), available at http://www.usdoj.gov/atr/cases/f206000/206049.pdf.
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assets were part of a larger business and had to be separated for purposes of the divestiture, the
DOJ has included a monitoring trustee provision in the consent order.102
VI.
Conclusion
As has been seen, the U.S. antitrust agencies generally have a consensus on
merger remedies policy. Both the DOJ and FTC prefer structural relief to conduct restrictions,
heavily employing divestiture as a remedy while limiting conduct relief to narrow circumstances.
Both agencies will closely examine proposed buyers to ensure that qualified buyers are selected
and such buyers have the incentive, experience, and ability to utilize the divested assets to restore
competition in the market. Nonetheless, there are significant differences in remedial policy
when it comes to requiring upfront buyers, considering fix-it-first remedies, the inclusion of
crown jewel provisions, and the use of interim monitors.
FTC Chairman Deborah Platt Majoras, one of the very few people to have served
in senior positions at both agencies under the same President, recently offered a rationale for the
divergent approaches of the two agencies:
Because the FTC (and the Division) have such long-time experience in certain
major industries, we have developed approaches to remedies that rely upon that
experience and that recognize the particular structural differences that mergers in
those industries present. These differences among industries may be the primary
explanation for any variation in approach to remedy crafting, be it “fix-it-first,”
“up front buyer,” the use of monitors, and the inclusion of crown jewel
provisions. Such differences from industry to industry, rather than any
fundamental difference in analytical approach to remedies, may best explain why
102
U.S. v. Premdor, Inc., Civil No.: 1:01CV01696 (D.D.C. Aug. 3, 2001) (Final Judgment), available at
http://www.usdoj.gov/atr/cases/f8900/8908.pdf (divestiture required of the Towanda facility but parties were
permitted to retain the remainder of the North American masonite business; assets were to be segregated from the
remainder of the North American business; monitor trustee provisions included in consent decree).
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it may appear that the FTC has had a “preference” for certain kinds of provisions
as compared to the Division.103
It may well be that industry differences are the reason for the different approaches
at the FTC and DOJ, but we are not aware of any systematic study to support this conclusion.
Another explanation for the “variation in approach to remedy crafting” may be the very different
ways in which the two agencies are structured to address remedy issues. The FTC has a separate
“compliance shop” within the agency that is involved in consent decree negotiations along with
the investigating staff and that handles issues arising in the administration of consent decrees
without involvement of the staff that investigated the merger. By contrast, ever since then
Assistant Attorney General William Baxter disbanded the DOJ’s compliance section in 1981,
consent orders have been negotiated and monitored by the staff that investigates the merger. It
may be that a more conservative approach to merger remedies is correlated with the existence of
a separate staff whose sole purpose is to address remedy compliance issues.
Whatever the reason for the differences, the divergent approaches to certain key
consent decree issues have real world consequences for merger parties. The variations mean that
review of a merger by the FTC rather than the DOJ may involve potential delay in achieving
synergies and pursuing/implementing integration of the two companies as consent decrees need
to be negotiated and upfront buyers identified and assets sales agreements entered into premerger as well as greater uncertainties and transaction costs in connection with the mechanics of
divestitures.
103
Looking Forward: Merger and Other Policy Initiatives at the FTC, Remarks by Deborah Platt Majoras,
Chairman, Federal Trade Commission, ABA Antitrust Section Fall Forum, November 18, 2004, at 10, available at
http://www.ftc.gov/speeches/majoras/041118abafallforum.pdf.
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