DOJ Updates Merger Remedies Manual
On September 3, 2020, two months after releasing the long-awaited Vertical Merger Guidelines, the Antitrust Division of the U.S. Department of Justice issued an update to its 2004 Policy Guide to Merger Remedies. The focus of the updated (and newly titled) Merger Remedies Manual is on structuring and enforcing remedies, short of full-stop injunctions, designed to cure competitive harms caused by mergers – both horizontal and vertical – that would lessen competition if left unchecked.
The Manual begins with a set of guiding principles, among them that remedies should preserve premerger competition, but not create ongoing government regulation of the market; temporary relief should not be used to redress persistent competitive harm; the merging entities, not consumers, should bear the risk of a failed remedy; and a remedy must be enforceable to be effective. From these first principles flow two basic tenets of remedies in merger cases: first, that divestitures (so-called structural remedies) are preferable to conduct remedies aimed at regulating the merged firm’s post-merger operations, which are rarely appropriate, and, second, that settlements designed to rectify competitive harm (so-called consent decrees) must be clear, fully implemented, and strictly complied with.
To this end, entire sections of the Manual address various aspects of divestitures: from the characteristics of an acceptable third-party buyer, to the ideal scope of what gets divested, and the terms upon which the sale is achieved. All of this is done with an eye toward ensuring that the buyer of the to-be-divested assets has both the means and the incentive to be a viable competitor to the merged firm in the relevant market. Similarly, the Manual describes the key provisions that all consent decrees should contain to ensure proper implementation and how compliance and enforcement of those decrees is overseen by the Division’s Office of the Chief Legal Adviser. Finally, other types of remedies are also featured in the Manual – including “fix-it-first” remedies that merging entities can implement in lieu of the Division filing a lawsuit, post-consummation remedies up to and including unwinding a merger, and remedies born of collaborations with regulators and other antitrust enforcers.
But perhaps the most notable section, at least from a prescriptive standpoint, spans just two pages in the middle of the Manual and outlines five characteristics that, in the Division’s experience, increase the risk that a divestiture remedy will not preserve competition and therefore not gain the Division’s approval. These include: (1) the divestiture of less than a standalone business that lacks a proven track record of success and does not come with all of the physical and intangible assets necessary to compete; (2) a “mix and match” divestiture comprised of assets contributed by each merging entity that may not mesh efficiently; (3) allowing the merged firm to retain rights to divested intangible assets that then hamstrings the buyer’s ability to differentiate its product; (4) ongoing entanglements between the buyer and the merged firm that undermine the buyer’s independence and could lead to collusion; and (5) regulatory or logistical hurdles that impede the buyer’s ability to quickly deploy the divested assets. Any entity considering a merger would be wise to take these factors into account if and when it needs to devise a remedy to obtain merger clearance.
When it comes to navigating the merger review process, the updated Merger Remedies Manual, coupled with the new Vertical Merger Guidelines, give businesses and antitrust practitioners alike a more robust and useful roadmap.