Up-front Buyer and Fix It First Remedies
Part A – European Commission
Part B – UK Competition Commission
Chris Bright
BIICL Merger Control Conference
13 November 2008
Part A – European Commission
2
EU framework
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New Remedies Notice
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Specific provisions dealing with up-front buyer / fix it first / crown jewels
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paras 50-57 and 44-46
Up-front buyer concerns cases involving considerable obstacles for divestiture, e.g.
third party rights or uncertainties as to finding suitable purchaser, or cases causing
considerable risks of preserving competitiveness and saleability of divestiture
business in interim period
Fix it first concerns, in particular, cases where identity of purchaser crucial for
effectiveness of proposed remedy
Crown jewel alternative where implementation of preferred divestiture option
uncertain in view of, e.g. third parties’ pre-emption rights or uncertainty as to
transferability of key contracts, IP rights, or uncertainty of finding suitable purchaser
Model Text for Divestiture Commitments
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Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004
and under Commission Regulation (EC) No 802/2004, 22 October 2008, OJ [2008] C 267/01
“The proposed concentration shall not be implemented unless and until [X] or the Divestiture
Trustee has entered into a final binding sales and purchase agreement… and the
Commission has approved the purchaser and the terms of sale…” (Section B.1)
Form RM
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“Acquisition by a suitable purchaser: Explain the reasons why, in your view, the business will
be acquired by a suitable purchaser in the time-frame proposed in the commitments offered.”3
(para 5.13)
EU history of up-front buyer
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Commission has always had this power
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First used in Case No COMP/M.2060 Bosch / Rexroth (3 May 2000)
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Used relatively infrequently
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6 times out of 87 published Phase II conditional clearance decisions (75 of
which involving divestitures)
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EU history of up-front buyer (cont.)
Name
Date
Decision
Type
Issue
Crown Jewel
Alternative? (Y/N)
M.3796 Omya / Huber
19/07/06
Art 8(2)
Identity of purchaser (industrial not financial). Needed
speedy divestiture.
N
M.3431 Sonoco /
Ahlstom / JV
06/10/04
Art 8(2)
Financial viability of divested business (plant in isolated
geographic position).
N
M.2972 DSM / Roche
/ Vitamins
23/07/03
Art 8(2)
Viability and independence of divested business. Needed
immediate restoration of effective competition.
N
M.2947 Verbund /
Energie Allianz
11/06/03
Art 8(2)
Purchaser needed to provide an important counterweight
to the parties' market power.
N
M.2544 Masterfoods /
Royal Canin
15/02/02
Art 6(2)
Viability of divested business (being composed of assets
from both parties which were located in several Member
States). Needed purchaser with proven expertise in
relevant market.
N
M.2337 Nestlé /
Ralston Purina
27/07/01
Art 6(2)
Viability of divested business. The purchaser needed the
necessary financial resources to maintain the business
as an effective competitor.
Y – First time upfront buyer
solution coupled
with “crown jewels”
remedy.
M.1915 The Post
Office / TPG / SPPL
13/03/01
Art 8(2)
Viability and competitiveness of divested business (which
would quickly have lost its customer base).
N
M.2060 Bosch /
Rexroth
14/12/00
Art 8(2)
Viability and instant competitiveness of divested business
(to prevent Bosch regaining market share lost by sale by
selling to “weak” business).
N
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EU history of fix it first
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Used even less frequently than up-front buyer
4 times out of total 87 published Phase II conditional clearance decisions (75
of which involving divestitures)
Name
Date
Decision
Type
Issue
Crown Jewel
alternative?
(Y/N)
M.4187 Metso / Aker
Kvaerner
12/12/06
Art 8(2)
Only one purchaser suitable for acquiring divestiture business (only
one with necessary know-how and presence in neighbouring
markets).
N
M.4000 Inco /
Falconbridge
04/07/06
Art 8(2)
Divestiture of a nickel processing business could only take place to
a competitor vertically integrated into the supply of nickel.
N
M.3916 T-Mobile
Austria / tele.ring
26/04/06
Art 8(2)
Divestiture of certain mobile telephony sites and frequencies, not
constituting viable business, could only take place to similar
competitor.
N
M.3436 Continental /
Phoenix
26/10/04
Art 8(2)
Only the partner in the distribution joint venture was able to render
the divested business viable.
N
M.3136 GE / AGFA
NDT
05/12/03
Art
6(1)(b)
Identified purchaser was independent, already active in market and
had necessary expertise to operate the divested business.
N
M.1878 Pfizer /
Warner Lambert
22/05/00
Art
6(1)(b)
Identified purchaser of divested “Cognex” assets was a viable and
independent competitor in the relevant market.
N
M.1137 Exxon /
Shell
08/07/98
Art
6(1)(b)
Purchaser was an independent and viable competitor with the
financial resources and expertise to act as a competitive force in
competition with the JV and other competitors.
N
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Areas for use
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Where:
– asset package only viable in particular circumstances
– few acceptable purchasers
– third party consents required
– difficulties in financing purchase
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Practical issues
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For notifying party
– Little time to run competitive process (although potential for parallel negotiations)
– Any crown jewel must be held separate in addition to preferred package - can’t
implement any synergies in respect of either package
– Both crown jewel and preferred package have to be maintained as competitive
businesses
– Neither up-front nor fix it first remedies are much use when there may not be any
suitable purchasers at all
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For potential purchaser
– Potential deal now - reduced risk of resurgent competitors during a later auction
process
– Greater negotiating strength for purchaser, as against time constrained notifying
party
– Increased time pressure to conduct due diligence and deal negotiation
– Risk of being frozen out in favour of another competitor
– Risk of notifying party running parallel processes
– Potentially less generous package if notifying party points to purchaser’s ability to
fill in the gaps
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– Risk of spin-off / de-merger
Part B – UK Competition Commission
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Competition Commission Guidelines
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Merger Remedies: Competition Commission Guidelines Consultation Draft May 2008
– Where CC is in doubt as to viability or attractiveness to purchasers of proposed
divestiture package (i.e. composition risk) or believes there may be only limited
pool of suitable purchasers (i.e. purchaser risk), it may require parties to obtain
suitable purchaser that is contractually committed to transaction before
permitting proposed merger to proceed or completed merger to progress with
integration
– Where CC considers that competitive capability of divestiture package may
deteriorate pending the divestiture (i.e. asset risk) or completion of divestiture
may be prolonged, it may also require that up-front buyer completes acquisition
before merger may proceed or, in case of completed merger, before merger
parties may progress with integration (para 3.19)
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CC history of up-front buyer
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Few cases
Note number of completed mergers referred which limits scope
Kemira GrowHow/Terra Industries merger inquiry (2007)
– CC insisted on up-front buyer where divestiture business was ‘carved out’ of existing
business as, given structure of deal, there were doubts that suitable purchaser would
be found
– CC noted that pool of suitable purchasers would probably be restricted to established
companies in the UK chemical distribution industry
Somerfield v Competition Commission (Competition Appeals Tribunal, 2006)
– CC ordered Somerfield to divest certain acquired Morrisons supermarkets
– CC excluded Limited Assortment Discounters from ‘competitor set’ of permitted
divestees, on basis that they were insufficiently close competitors to conventional
supermarkets and thus would not be sufficiently committed to relevant market
– Somerfield appealed unsuccessfully to CAT
Hamsard 2786/Academy Music Holdings (2007)
– CC ordered parties to divest specific indoor live music venues in London
– CC insisted on up-front buyer due to concerns about attractiveness of divestiture
package to purchasers and doubts about whether there were suitable purchasers
– Remedy provided incentive to quickly reach agreement with suitable purchaser and so
reduced the risk of possible degradation of assets
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