Bureau of Competition of the

Negotiating

Merger Remedies

Statement of the

Bureau of Competition of the

Federal Trade Commission

Richard Feinstein

Director

January 2012

The views expressed herein are those of the Bureau of Competition

and do not necessarily reflect the views of the

Commission or of any individual Commissioner.

Statement of the Federal Trade Commission’s Bureau of Competition

on Negotiating Merger Remedies

The Federal Trade Commission’s Bureau of Competition has revised this Statement,

which provides guidance to those negotiating a settlement in a merger case.1 This guidance

should answer many of the questions that frequently arise and should expedite negotiations.2 In

addition, merging parties should review the Commission’s past complaints, orders, and related

documents, to see various order provisions that the Commission has required in past cases.3

Each merger is unique, however, and any proposed remedy is evaluated on the particular facts of

the case. Accordingly, that the Commission has accepted a particular provision in the past will

not on that basis alone be persuasive that the same provision should be accepted in a new matter.

The Commission and its staff are constantly learning from their experiences; provisions in

previous cases that proved insufficient may not be acceptable in a subsequent case.

This statement assumes that the staff have identified concerns with a proposed or

consummated transaction, and that the merging parties and staff are negotiating a settlement.

This statement addresses issues arising in the following areas: (1) the assets to be divested, (2) an

acceptable buyer, (3) the divestiture agreement, (4) additional order provisions, (5) orders to

hold separate and/or maintain assets pending divestiture, (6) divestiture applications, and (7)

timing.4

See http://www.ftc.gov/bc/bestpractices/index.shtm for transcripts and related

submissions of the 2002 workshops that the Bureau held on merger remedies; see, also,

Frequently Asked Questions about Merger Consent Order Provisions at

http://www.ftc.gov/bc/mergerfaq.shtm, and the Bureau of Competition’s Divestiture Study at

http://www.ftc.gov/os/1999/08/divestiture.pdf.

1

The Commission’s Rules of Practice and Procedure are available at 16 C.F.R. §§ 1.1 et

seq., and on the FTC web site at http://www.ftc.gov/os/rules/index.htm and at

http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?sid=3ad5b48a02eb1707974872e00175bbb5&c=ecfr

&tpl=/ecfrbrowse/Title16/16cfrv1_02.tpl.

2

This Statement is intended to supplement available information. It is not intended to be

exhaustive, nor is it a statement of law. The staff compiled it, and it reflects their views; it does

not necessarily reflect the Commission’s view or any individual Commissioner’s view. It is

intended to be illustrative only, and as such, cannot be used to bind the staff, the Commission, or

any individual Commissioner.

Commission Enforcement Database (containing merger cases since 1996) is available at

http://www.ftc.gov/bc/caselist/merger/index.shtml.

3

Once a complaint and order are issued, the named party is a “respondent,” a term that

will be used throughout this Statement to distinguish that party from the “buyer,” which is the

acquirer of assets that are divested.

4

Table of Contents

The Proposed Divestiture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Anticompetitive horizontal mergers are most often remedied by a divestiture; a

proposal to divest one party’s demonstrably autonomous, on-going business

unit will usually expedite settlement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

If the proposed package of assets does not comprise a separate business unit that

has operated autonomously in the past, the staff is unlikely to recommend

that the Commission accept such a proposal until the parties show that the

package includes all necessary components, or that those components are

otherwise available to a prospective buyer. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

The Commission will typically require an up-front buyer if the parties seek to divest

assets comprising less than an autonomous, on-going business or if the to-bedivested assets are susceptible to deterioration pending divestiture. . . . . . . . 7

If the parties propose to divest primarily intellectual property or other limited

assets, the Commission will typically require an up-front buyer. . . . . . . . . . . 8

An Acceptable Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

To be acceptable, a buyer must be competitively and financially viable; proposing a

buyer that does not satisfy these tests will be unacceptable and will slow

negotiations down. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

The Divestiture Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Whether up-front or post-order, the staff will review the divestiture agreement

carefully to determine that it conveys all assets required to be divested and

contains no provisions inconsistent with the terms of the Commission’s order

or with the order’s remedial objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

In evaluating the terms of the divestiture agreement, the staff will rely primarily on

information obtained from the buyer; however, the staff remains aware that

the buyer’s incentives may not always be consistent with the Commission’s

objectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

The merging parties must obtain all required third-party consents and approvals

before the Bureau recommends that the Commission approve a proposed

divestiture. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Additional Order Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

In some cases, the buyer may need additional, short-term assistance from the

merging parties, particularly when less than the entire business of one party

is being divested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

If the Commission’s order imposes obligations requiring a continuing relationship

between the respondent and the buyer, the Commission may appoint an

independent third party to monitor the parties’ compliance with their

obligations under the Commission’s order. . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Order to Hold Separate or Maintain Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

2

If there is concern about interim competitive harm or diminution in the competitive

strength of the assets to be divested pending divestiture, staff will require an

additional order that requires the parties to hold separate the assets to be

divested. Even if an order to hold separate is not necessary, the parties will

be required to maintain the assets to be divested pending divestiture. . . . . 16

The order to hold separate or maintain assets will include the appointment of an

independent third party to oversee the operations of the held separate

business or monitor the parties’ compliance with the order. . . . . . . . . . . . . 17

Divestiture Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

In cases requiring a post-order divestiture, the respondent has the burden of

showing that the proposed divestiture meets the order’s specific

requirements and satisfies the order’s remedial purposes. . . . . . . . . . . . . . . 18

The respondent must include in its application all information and documents

sufficient to satisfy its burden and should assure that the buyer will

cooperate with the staff’s requests for information and documents. . . . . . 18

The respondent’s application should include a representation that the proposed

divestiture conveys all assets required to be divested, including obtaining all

necessary consents and approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Failure to consummate the required divestiture within the time limit set forth in the

Commission’s order violates the Commission’s order. . . . . . . . . . . . . . . . . . 19

Timing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

If time is of the essence, the parties should raise those concerns as early as possible

and consider alternatives that may expedite the matter. . . . . . . . . . . . . . . . . 20

3

The Proposed Divestiture

•

Anticompetitive horizontal mergers are most often remedied by a divestiture; a

proposal to divest one party’s demonstrably autonomous, on-going business unit will

usually expedite settlement.

The Commission and the staff analyze proposed or consummated mergers between

competitors to determine whether they will cause or have caused anticompetitive effects in

violation of Section 7 of the Clayton Act. If staff determines that anticompetitive effects are

likely, it will discuss with the parties what it has learned and what it believes an acceptable

remedy must include to maintain or restore competition in the markets affected by the merger. A

negotiated settlement is intended to achieve that remedy while allowing the parties to proceed

with the merger’s non-problematic portions.

The parties must decide whether they wish to engage in settlement discussions with the

staff. On the Commission’s side, the discussions will involve the Commission’s Bureau of

Competition (including the Compliance Division) and the Bureau of Economics. On the parties’

side, the discussion should include not only outside counsel if the parties are so represented, but

in-house representatives as well, including lawyers and operations people.

Although the parties and the staff negotiate a proposed settlement and finalize terms, the

Commission ultimately determines whether the proposal is acceptable. It does so by a majority

vote of the Commissioners after they review the materials that staff prepares and forwards to

them. If the Commission concludes that a proposed settlement will remedy the merger’s

anticompetitive effects, it will likely accept that settlement and not seek to prevent the proposed

merger or unwind the consummated merger.

The Commission and the staff review most mergers prior to consummation, but they also

review consummated deals. The legal analysis of a proposed transaction does not differ

significantly from the legal analysis of a consummated deal; however, remedying a

consummated deal poses different issues. The Commission’s objective in all cases is to

eliminate, to the extent possible, the anticompetitive effects that will result or have resulted from

the merger, which most often requires divestiture. In a consummated deal, the parties have

already acquired assets and have often integrated them. If the acquired assets are well

integrated, crafting an effective divestiture to eliminate the anticompetitive effects may be

problematic,5 but it nonetheless may be necessary to undo the illegal effects of the merger.6

The difficulty of “unscrambling of the eggs” led Congress to enact the Hart-ScottRodino Act in 1976 and authorize the antitrust enforcement agencies to implement the

Premerger Notification Program in 1978. Hart-Scott-Rodino Antitrust Improvements Act of

1976, 15 U.S.C.§ 18a; Premerger Notification Rules, 16 C.F.R. § 800 et seq.

5

6

For instance, in one consummated case in which the respondent had fully integrated

(continued...)

4

Most merger cases involve horizontal mergers, and the Commission prefers structural

relief in the form of a divestiture to remedy the anticompetitive effects of an unlawful horizontal

merger. Non-structural, or conduct, relief may also be required in aid of a required divestiture to

remedy those effects. Such additional relief may include supply agreements, employee

obligations, confidentiality protections, and other provisions necessary to support a successful

divestiture. Conduct relief also may be required to remedy the anticompetitive effects of a

vertical merger. Such conduct relief may include a requirement to erect firewalls to protect

confidential information or a requirement not to favor certain entities.

The staff is most likely to accept the parties’ offer to divest an autonomous, on-going

business unit that comprises at least one party’s entire business in the relevant market. Such a

remedy will most immediately eliminate the competitive problems created by the merger by

preserving or re-creating the competitive status quo, and it entails the least amount of risk. It

also requires the Commission and the staff to make the fewest assumptions about the market and

its participants and about the viability and competitiveness of the proposed divestiture.

The parties should be prepared to show that the business unit contains all components

necessary to operate autonomously, that it has operated autonomously, that it is segregable from

the parent, and that the unit’s buyer will be able to maintain or restore competition almost

immediately. The business people should be prepared to explain the unit’s business operations

and to provide relevant financial information and separate financial documents. As discussed

below, a proposal short of that requires the staff to ask additional questions and conduct further

analysis; as a result, completing negotiations will likely take more time.

The staff will examine a proposed divestiture to determine whether it includes all of the

unit’s components. These components generally include:

• manufacturing and other facilities

• access to key inputs and other supply

• access to markets for ancillary outputs

• research and development capability

• intellectual property, whether owned or licensed

• technology, including know-how and trade secrets as well as information technology

(...continued)

acquired assets, the Commission required the respondent to reorganize the company into two

separate, stand-alone divisions, and divest one of them. In the matter of Chicago Bridge & Iron,

FTC Docket No. 9300, aff’d Chicago Bridge & Iron Company v. Federal Trade Commission,

534 F.3d 410 (5th Cir. 2008), available at http://www.ftc.gov/os/adjpro/d9300/index.shtm. The

Commission also recently ordered divestiture in a consummated merger after the administrative

law judge determined that the merger resulted in anticompetitive price increases. In the matter

of Polypore International, Inc., FTC Docket No. 9327 (Dec. 13, 2010), available at

http://www.ftc.gov/os/adjpro/d9327/index.shtm. Respondents have appealed the Commission’s

order to the Eleventh Circuit. http://www.ftc.gov/os/caselist/0810131/index.shtm.

6

5

• identification of and access to personnel

• marketing and distribution capabilities

• supply, service, and customer relationships

• capital resources

• anything else necessary to compete effectively in the relevant market

The proposed package may also include business components relating to markets outside

the relevant geographic or product market, if such components are necessary to assure that the

buyer retains the same efficiencies that the respondent had. For example, when the product is

marketed and distributed with other products, the assets to be divested may include assets

relating to these other products in order to remain efficient. Similarly, if vertical integration is

an important competitive element, it may be necessary to include assets at more than one level of

the industry.

•

If the proposed package of assets does not comprise a separate business unit that has

operated autonomously in the past, the staff is unlikely to recommend that the Commission

accept such a proposal until the parties show that the package includes all necessary

components, or that those components are otherwise available to a prospective buyer.

If the parties seek to exclude any of these components, they must explain why the

components are not included and what a buyer would use instead. The parties must also explain

how the buyer will be able to integrate the divested components into its own operations to operate

competitively. The parties’ operational employees tend to be the most knowledgeable about these

issues. Suppliers, customers, competitors, and other possible buyers may also provide instructive

evidence; the parties should be prepared to make such evidence available if necessary or direct the

staff to where it can be obtained.

A blanket assertion by the parties that certain components – for example, the research

and development unit – are not necessary will generally not be persuasive. The parties should

provide evidence that the carve out will not undermine the buyer’s viability or competitiveness.

For instance, an explanation that any buyer acceptable to the Commission will have its own

research and development unit may be persuasive if the parties provide evidence to support the

explanation. The parties may also demonstrate that manufacturing facilities need not be divested

if they can show that appropriate third-party contract manufacturing is readily and competitively

available. The parties must show that such arrangements are common, are readily available, and

will not disadvantage the buyer. Providing evidence that competitors use such arrangements and

that customers will purchase the contract-manufactured finished product may expedite

negotiations.

If the parties propose to assemble all necessary components by combining assets that

have never been combined in the past (e.g., combining one party’s assets with some of the other

party’s assets, rather than including all of one party’s assets), the parties must show that the

proposed divestiture will enable the buyer to maintain or restore competition in the market. For

example, in the grocery retailing market, the parties might provide detailed analysis of each

supermarket that the parties propose to divest to show that the proposed divestiture would

6

maintain or restore competition in the market. If, however, the parties have proposed divesting

lower performing, higher operating cost, older, less conveniently located supermarkets, they will

have difficulty persuading the staff to accept such a package. The Bureau is willing to examine

any proposal, but it will always require sufficient evidence to conclude that the proposed

divestiture will maintain or restore competition and will require sufficient time to analyze the

evidence. In general, a “mix and match” proposal tends to slow the negotiations down, requiring

a more fact-specific, detailed, and time-consuming evaluation of each asset.

•

The Commission will typically require an up-front buyer if the parties seek to divest

assets comprising less than an autonomous, on-going business or if the to-be-divested assets

are susceptible to deterioration pending divestiture.

If the parties propose to divest more limited assets, the staff will typically consider such a

package only if the proposed order specifies an “up-front buyer”; that is, the parties must

identify an acceptable buyer and then negotiate, finalize, and execute the purchase agreement

and all ancillary agreements with that buyer before staff forwards the proposed order to the

Commission. The staff will carefully review both the buyer and the agreement before making its

recommendation. The proposed order will specifically identify the buyer and require divestiture

to that buyer pursuant to the reviewed agreement; the agreement will be attached as a

confidential exhibit and incorporated into the order. The divestiture to the named up-front buyer

must be completed immediately after the Commission accepts the proposed order. By requiring

an up-front buyer, the staff seeks to minimize the risks that there will not be an acceptable buyer

for such limited assets or that the buyer of the limited assets will not be able to maintain or

restore competition.

Divestiture to an up-front buyer also minimizes the possibility that the assets and

competition will diminish pending divestiture, which causes immediate competitive harm. The

staff’s experience has shown that some assets, such as supermarkets, tend to deteriorate pending

divestiture; such deterioration harms competition and may make it more difficult for the buyer to

maintain or restore competition. In these situations, the Commission has required up-front

buyers. The staff remains willing, however, to consider on a case-by-case basis whether certain

protections (such as orders to hold separate or maintain assets, crown jewels, and monitors, all

discussed below) can eliminate the need for an up-front buyer.

An order that specifies an up-front buyer typically requires that the parties divest the

assets to the up-front buyer quickly and pursuant to the agreement attached to the order. In fact,

the parties may consummate the up-front deal before the public comment period on the proposed

order ends and the order becomes final. To assure that the Commission can reject the up-front

buyer if it determines to do so after the public comment period, the Commission typically

requires a rescission clause in the purchase agreement. (As of December 2011, the Commission

has never required rescission of such an agreement.) In most cases with an up-front buyer, the

order states that, if the parties fail to divest to the up-front buyer pursuant to the up-front

agreement in a timely manner, the Commission may appoint a trustee to divest the same assets or

a “crown jewel” package of assets.

7

If staff is likely to require an up-front buyer, the parties should begin negotiations with an

acceptable buyer as soon as they understand the scope of the assets that they must divest.

Involving the staff as early as possible may expedite approval, although the staff will not be

directly involved in the actual negotiations. The staff will, however, provide guidance,

suggestions, and requirements about the provisions that should or should not appear in the final

purchase agreement. For example, some non-compete, non-solicit, or royalty clauses may not be

acceptable.

The parties will likely negotiate the proposed order with the staff while they are

negotiating the purchase agreement with the proposed up-front buyer. The staff will not disclose

to the buyer details of the negotiations between the staff and the parties. The parties should be

aware, however, that the staff will discuss relevant issues with the buyer, especially those

concerning the assets to be divested. The staff may also discuss these issues with others who

might be knowledgeable about the market and be able to evaluate the proposed divestiture, such

as other competitors, customers, suppliers, and employees. The process, therefore, will be an

iterative one; as the staff learns more about the market and competition, it may require changes

to the asset package, the proposed decision and order, or the purchase agreement.

The parties should finalize the purchase agreement and all ancillary agreements

expeditiously. The staff will review the purchase agreement carefully, including all ancillary

agreements, to assure that they convey all required assets and that they are consistent with the

proposed order. (See discussion on the Divestiture Agreement below.)

By contrast, an order that requires what is referred to as a “post-order buyer” requires the

parties to divest certain assets within a certain time period after the Commission has considered

the proposed order “to a buyer that receives the prior approval of the Commission and in a

manner that receives the prior approval of the Commission.” Thus, a post-order buyer and the

relevant agreements are typically neither identified nor reviewed before the Commission issues a

final order; they are instead negotiated, finalized, and then reviewed some months later.

•

If the parties propose to divest primarily intellectual property or other limited

assets, then the Commission will typically require an up-front buyer.

The staff and the Commission may consider a divestiture of primarily intellectual

property or other limited assets; however, the parties must persuade the staff and the

Commission that such a divestiture will achieve the remedial purposes of the order. To show

that such a divestiture will address the competitive concerns, the parties must show that there is

an acceptable buyer that can enter the market by acquiring the intellectual property or other

limited assets, is willing to make the acquisition, and has the necessary incentives to compete in

the market. In all likelihood, staff will recommend accepting such a proposal only with an upfront buyer.

If the assets are primarily intellectual property, the parties must show that the buyer will

acquire all intellectual property necessary to maintain or restore competition in the relevant

market and will have access to all relevant and necessary rights. The parties should be prepared

8

to convey all rights necessary so that the buyer can develop, produce, use, distribute, and sell the

relevant product in the relevant geographic market. (See discussion below relating to obtaining

necessary third-party consents and approvals.) If the buyer cannot produce the product

immediately, the staff may require that the parties supply product to the buyer temporarily until

the buyer can produce the product itself. The parties should be prepared to enter into a supply

agreement – reviewed by the staff – that will enable the buyer to compete effectively

immediately. (See discussion below relating to such agreements.) The parties may be required

to provide technical assistance to the buyer when, for example, the relevant product involves

highly sophisticated or complex technologies. On the other hand, technical assistance alone may

not be sufficient when, for example, access to key employees is critical to effective competition.

The parties should then be prepared to assure the transfer of those key employees. (See

discussion below relating to such steps.)

Supply agreements and technical assistance may, however, create what the staff refers to

as “continuing entanglements.” The staff seeks to avoid these because competitive issues may

arise and complex monitoring may be required. In addition, the more a proposed buyer requires

these provisions, the more difficult it may be to persuade the staff that such a divestiture would

remedy the Commission’s competitive concerns. When they cannot be avoided, staff will seek

to minimize the length of the agreements and may require independent monitoring.

In some cases, the buyer’s ability and incentive to develop the relevant product may be

affected by whether it also has the right to develop other products or sell outside the relevant

geographic markets. The staff may thus require that the divestiture include the right to use the

intellectual property to develop products outside the relevant product market, or the right to use

the intellectual property outside the relevant geographic market. The divestiture may also

require exclusive, rather than co-exclusive or non-exclusive, rights to certain technology. The

staff has found that access to patent lawyers and others knowledgeable about the transfer and use

of intellectual property in the industry and access to the scientists or other professionals involved

in the development and use of the intellectual property often expedite negotiations.

In some cases, parties propose to license necessary intellectual property instead of

divesting it. This occurs often when the parties assert that they need to use the intellectual

property in the research, development, or production of other products outside the relevant

product market or in other locations outside of the relevant geographic market. If the parties

seek to transfer only limited rights to the intellectual property, they should be prepared to show

that such limitations will not adversely affect the buyer’s ability to compete effectively.

Licensing intellectual property rights instead of divesting the intellectual property may not be

sufficient if it limits how the buyer can use the intellectual property and adversely affects the

buyer’s long-term viability; in such cases, the staff may require that the parties divest the

intellectual property but agree that the parties can license back rights to the divested intellectual

property. If the parties anticipate that they will require continued access to intellectual property

that may be the subject of a proposed divestiture, they should raise that issue as early as possible.

9

An Acceptable Buyer

•

To be acceptable, a buyer must be competitively and financially viable; a proposed

buyer that does not satisfy these tests will be rejected, and the parties will be required to

propose an acceptable one.

Whether the buyer is post-order or up-front, it must be one that can maintain or restore

competition in the relevant market after acquiring the divested assets. The staff will therefore

evaluate a proposed buyer to determine whether it has (1) the financial capability and incentives

to acquire and operate the assets, and (2) the competitive ability to maintain or restore

competition in the market.

The staff will be prepared to discuss with the parties an acceptable buyer’s

characteristics. It is, however, the responsibility of the parties to propose the buyer, and, as

discussed below, the parties must show that the buyer is acceptable. Proposing a buyer that does

not clearly satisfy the necessary criteria will delay approval.

The staff generally has no preference as to the method the parties use to select an

acceptable buyer. Some parties prepare an offering memorandum (sometimes with the help of

an investment bank) and solicit bids. Some parties approach individual firms that they believe

may be acceptable buyers. Another possibility is an auction process. Auction processes have

the advantage of excluding the parties from the selection of the proposed bidders or buyer; on

the other hand, there is no guarantee that the Commission will approve the winning bidder (the

high bidder may be, for example, an incumbent that raises independent competitive concerns or

a financial investor that lacks the expertise to succeed, notwithstanding its high bid). The staff is

not opposed to an auction as long as it can be completed within the required time period,

although parties have typically been reluctant to use auctions because of the additional time

involved. In the first instance, however, the parties select the search method. Should the parties

have any questions about the method they intend to use, they should consult staff as soon as

possible.

The staff will evaluate a proposed buyer very carefully to determine whether the buyer is

financially and competitively viable. The parties should thus evaluate and select a proposed

buyer with these criteria in mind. The proposed buyer’s financial condition should be

thoroughly scrutinized by reviewing balance sheets and other financial data to determine

whether the buyer has the necessary financial resources. To protect the buyer’s competitively

sensitive information, the parties should have counsel or some other third party, rather than their

own business people, conduct the review. The staff’s review of a buyer will be broader than the

parties might conduct if they were considering selling significant assets in a deal not ordered by

the Commission; in a Commission-ordered divestiture, the parties must demonstrate not only

that the proposed buyer has the financial ability to close on the proposed transaction, but also

that it has both the financial ability and economic incentive to maintain or restore competition in

the relevant market.

10

The parties and the buyer should determine whether any financial information raises

concerns and, if so, notify staff as soon as possible. Such information would include, for

example, significant debt due soon, other recent acquisitions that may implicate the buyer’s

financial position, or imminent adverse financial announcements. The parties should inform the

buyer that the staff will be requesting financial information directly from the buyer; obviously, it

is in the parties’ interest to obtain the buyer’s cooperation.

All orders require divestiture “at no minimum price.” The Commission does not

typically evaluate the proposed purchase price, but an offer to pay a price that is less than the

break-up value of the assets may raise concerns about the buyer’s incentives to compete and its

commitment to the market. The Commission will not approve a divestiture to a buyer that

intends to re-sell the assets for their break-up value.

The parties should ascertain whether the buyer will need financing. If the buyer will

need financing, the parties should assure that the buyer is making those arrangements. The

parties should inform the buyer that the staff may wish to interview the entity providing the

financing. If the ability to obtain financing becomes an issue, decreasing the purchase price may

be an option; seller financing, in all likelihood, is not. A buyer that requires seller financing

because it cannot otherwise obtain financing may not be financially sound. In some cases in

which the buyer’s ability to obtain financing was in doubt the parties agreed to a limited, upfront payment followed by subsequent payments over time; however, the staff will not accept

such an arrangement if the subsequent payments are tied to the assets’ future performance, such

as royalty payments or other performance-based payments. Such an arrangement may skew

incentives and will likely require sharing competitively sensitive information. The requirement

that the divestiture be “absolute” prohibits other continuing relationships between the parties and

the buyer, such as, for example, lease arrangements or security interests retained by the parties.

The buyer must have the experience, commitment, and incentives necessary to achieve

the order’s remedial objective. These attributes can be shown, for example, by the buyer’s

participation in related product markets or adjacent geographic markets, involvement in upstream or down-stream markets, past attempts to enter the market (depending on why those

attempts were not successful), or previous expressions of interest in the market. The buyer

should not currently be a significant market participant or already be pursuing significant entry

on its own. A fringe competitor may be acceptable. If any components of an independent

business have been omitted from the assets to be divested, the parties should be prepared to show

that the buyer has the necessary components or access to them. The parties should inform the

buyer that it will need to develop its business plans to present to the staff (not to the parties, of

course). The business plans should be thorough enough to persuade the staff that the proposed

buyer has sufficient experience to compete in the market, that it has done adequate due diligence,

that it knows what is needed to compete in the market, and that it is committed to the market.

The parties should ensure that the buyer understands this obligation and is prepared to cooperate

with the staff.

The staff will independently evaluate the proposed buyer, interviewing, as necessary,

buyer representatives, customers, suppliers, competitors, other possible buyers, and any other

11

individuals that may provide relevant information. As indicated above, the staff will also ask the

buyer to submit competitively relevant information, including financial information. The parties

should ensure that the proposed buyer will respond quickly and supply the requested

information.

The Divestiture Agreement

•

Whether up-front or post-order, the staff will review the divestiture agreement

carefully to determine that it conveys all assets required to be divested and contains no

provisions inconsistent with the terms of the Commission’s order or with the order’s

remedial objectives.

The Bureau and the Commission will review and evaluate the purchase agreement,

including all appendices, exhibits, and schedules, and all ancillary agreements that the parties

and the buyer have negotiated, whether the divestiture is required up-front or post-order. The

parties are responsible for transferring to the buyer all assets required to be divested and

otherwise complying with the Commission’s order; however, the staff makes every effort to

assure that the divestiture agreement transfers to the buyer all assets required to be divested and

achieves the order’s remedial objectives. In addition to questioning the parties and the proposed

buyer, the staff may question suppliers, competitors, or customers about the operation,

effectiveness, or necessity of certain provisions.

Staff will discuss term sheets as soon as they are created, and the parties may expedite

the matter by giving the staff a draft divestiture agreement as soon as one has been negotiated.

The earlier the staff is able to begin its evaluation, the more quickly the matter can be resolved.

If the staff has questions, it will raise them with the appropriate party. When necessary, the staff

will suggest that the parties revise the agreement. Regardless of whether the parties submit a

final, executed agreement or a draft of an agreement, the staff will review the agreement

carefully and thoroughly and request changes that it believes are warranted and appropriate.

Submitting only the final, executed agreement to the staff does not mean that the staff is less

likely to request changes than if the parties had submitted drafts to the staff. In fact, it is the

staff’s experience that submitting drafts (ready for execution, but before execution) expedites the

process. Obviously, the more quickly the parties address staff’s concerns, the sooner the matter

will be resolved. Involving the in-house people who negotiated or are negotiating the

agreement, the transaction lawyers who drafted or are drafting the agreement, as well as the inhouse personnel who will have to comply with the agreement, will also expedite the matter.

Occasionally, transaction lawyers observe that the staff is raising issues about provisions that the

lawyers describe as “boilerplate.” The competition goals of the Commission are different,

however, from the goals of a typical transaction; therefore, otherwise standard provisions, such

as non-compete clauses and performance-based payments (e.g., royalties), while acceptable in a

typical transaction, may be unacceptable in a divestiture.

The staff will review the divestiture agreement to determine if the agreement transfers all

assets required to be divested and is otherwise consistent with the order. Language mirroring the

12

order language typically provides the necessary assurances that the agreement includes all assets

required to be divested. The parties sometimes intend to list all of the assets to be divested in an

attached schedule; some insist that they cannot prepare such a list until right before closing. But

before it recommends that the Commission accept the proposal, the staff must be assured that the

agreement includes all assets. A blank schedule does not provide those assurances. In other

cases, the parties have agreed to provide transitional services to the buyer, but they intend to

work out the details later. If the order requires such services, the parties and the buyer must

finalize the transitional services agreement and the staff must review it before the staff can

conclude that the parties have satisfied their order obligation. Even if the order does not require

the provision of such services, however, any agreement to do so may raise significant

competitive concerns and, accordingly, the parties and the buyer must finalize the agreement and

the staff must review it before the staff can make its recommendation. Similar concerns may

arise about any incomplete schedules, exhibits, appendices, or agreements. The staff will be

unable to recommend that the Commission accept such a proposal until all have been completed.

If the order imposes additional obligations, the staff will review the divestiture agreement

to assure that all such additional obligations are satisfied. For example, if the order requires the

parties to convey an exclusive license, conveying only a non-exclusive license will not be

acceptable. A one-year supply agreement tied to one manufacturing plant would be inconsistent

with an order provision that requires the parties to supply the buyer from a different plant. If the

parties are required to provide transitional services to the buyer, the divestiture agreement should

also provide “firewalls” if providing such services might disclose competitively sensitive

information.

The staff evaluates all provisions mindful that this is an agreement between two firms

who will be competitors. The staff often reminds the parties that a Commission-ordered

divestiture is not the same as a conventional transaction. In the more typical, consensual, arm’slength transaction, the parties are neutral as to the buyer’s success in the market; in a divestiture,

the merging parties may prefer that the buyer not be robustly competitive. The Commission

must protect against that preference.

•

In evaluating the terms of the divestiture agreement, the staff will rely primarily on

information obtained from the buyer; however, the staff remains aware that the buyer’s

incentives may not always be consistent with the Commission’s objectives.

As discussed, the staff will thoroughly and carefully review the divestiture agreement.

Staff will request information from the buyer and others, and will discuss the agreement with the

buyer’s legal and operational personnel, among others. The buyer’s information is extremely

important. But even though the buyer has reviewed the agreement and has agreed to its terms,

staff may nonetheless question provisions that the buyer has accepted. The Commission cannot

rely solely on the buyer’s incentives to achieve the objectives of its order because the buyer’s

incentives may not necessarily coincide with the Commission’s objective.

The Commission’s objective is to remedy the merger’s likely anticompetitive effects and

to maintain or restore competition in the relevant market. The buyer’s incentive is to generate an

13

adequate return on its investment, not necessarily to maintain or restore competition. As a result,

the buyer may want provisions, such as a long-term non-solicit clause or a long-term supply

agreement, that create perverse competitive incentives. Merely because the buyer agreed to a

certain provision may not be sufficient justification for the provision. Past experience has shown

that some buyers may agree to certain undesirable provisions that later undermine the buyer’s

effectiveness in the market. Therefore, even if agreed to by the buyer, objectionable provisions

will be accepted only with further supporting evidence.

•

The merging parties must obtain all required third-party consents and approvals

before the Bureau recommends that the Commission approve a proposed divestiture.

In many cases, third parties must consent to or approve the transfer of certain assets. If

such consents or approvals are necessary, then staff may require that the parties obtain all such

third-party consents and approvals before the staff recommends that the Commission accept the

proposed divestiture. For example, if a lease is included in the assets to be divested but the

landlord’s approval is required to transfer the lease, the parties must obtain that approval before

the staff will recommend that the Commission accept the proposed divestiture. If the parties

must transfer supply or customer contracts and they cannot do so without the supplier’s or the

customer’s consent, the parties must obtain these consents before the staff recommends

accepting the proposed divestiture. Transferring licensed intellectual property often requires the

original licensor’s consent, or assets to be divested may be subject to rights of first refusal. The

parties should plan to deal with these rights before the staff recommends that the Commission

accept the proposal.

Waiting until the last minute to begin obtaining these consents and approvals may delay

negotiations. Further delay may occur if the third parties require compensation before granting

the necessary approvals and consents. For example, a customer may not want its contract with

the parties transferred to a buyer with whom the customer has had no past dealings, and that

customer may insist on some protection (in the form of money or otherwise). The staff

recognizes that pre-existing leases, licenses, and the like, can, in the context of a pending merger

and divestiture negotiations, transform reasonable third-party approval rights into tools for

extracting arguably excessive concessions. The staff will work with the parties, whenever

possible, to explore how these conflicts may be minimized consistent with the need to obtain an

effective remedy. Letting the staff know as soon as the parties are aware that such consents and

approvals will be required can save time in the long run. The staff will work with the parties to

resolve these issues. For example, the Commission has included provisions that allow for the

substitution of equivalent assets when necessary, subject to the Commission’s approval. The

parties must show that the particular assets are not critical to the business’s success, that

substitute assets exist and can be transferred, and that transfer of substitute assets will enable the

buyer to be as competitive as the parties had been.

The parties should raise these concerns and issues as early as possible to enable the staff

to address them beforehand. After the order becomes final the parties must divest the assets

described in the order, and it will be too late to renegotiate the order’s terms. If the parties fail to

complete the required divestiture by the order’s deadline because the parties have not obtained

14

necessary third-party consents, the parties will have violated the order. The Commission can

then appoint a divestiture trustee to divest the assets, making all arrangements necessary to do

so. The Commission may also seek civil penalties and other relief for failure to divest on time.

A final order may be modified pursuant to Rule 2.51 of the Commission’s Rules of Practice, but

the parties will have a heavy burden to show a modification is warranted.7

Additional Order Provisions

•

In some cases, the buyer may need additional, short-term assistance from the

merging parties, particularly when less than the entire business of one party is being

divested.

Divestiture of an autonomous, on-going business (including all of the components of a

business, as discussed above) to a viable buyer will, in the majority of cases, immediately create

a competitor comparable to the competitor that would have been or was lost after the merger.

Divestiture of less than an autonomous, on-going business will not create that result until the

buyer can fill in the gaps; in some cases, the merging parties may be required to provide shortterm transitional assistance to the buyer to fill in these gaps temporarily.

For example, when the staff agrees that the merging parties need not divest

manufacturing or production capability, the staff may require that the parties assure a supply of

product to the buyer until the buyer can manufacture or obtain the product itself. The parties can

offer to supply the product themselves, but the staff will examine the offer to assure that it is

temporary and that the buyer is not at a competitive disadvantage, for example by having to

reveal competitively sensitive information or being locked in to a non-competitive price. Before

the staff can recommend that the Commission approve the proposed order, the parties and the

buyer must finalize the supply agreement so that the staff has an opportunity to review the

agreement to ensure that adequate safeguards exist. For instance, the parties may have to sell the

product to the buyer at some measure of variable cost. The parties must be prepared to provide

safeguards for the buyer if the production facility or line stops, and also to ensure that

competitively sensitive information is protected.

If the parties are required to divest patents, technology, and know-how, they also may be

required to provide technical assistance until the buyer if fully familiar with the patents,

technology, and know-how. If certain employees are key to the use of the technology or knowhow, the parties may be required to encourage those key employees to transfer to the buyer, for

example by providing financial and other incentives to those key employees to accept the

buyer’s employment offer. If reputation (which cannot be transferred) is a critical component of

effective competition, the parties must ensure that the buyer is not at a competitive disadvantage

because it lacks the reputation the parties have. The parties may be required to persuade

customers to switch to the buyer and then remain with the buyer for some transitional period

7

See 2.51 of the Commission’s Rules of Practice, 16 C.F. R § 2.51.

15

while the buyer establishes its own reputation. These are intended as short-term, temporary

obligations to establish the buyer as a viable competitor; the parties would have already

demonstrated that the proposed buyer is one that is likely to be able to establish its own

reputation in the market over the long term.

•

If the Commission’s order imposes obligations requiring a continuing relationship

between the respondent and the buyer, the Commission may appoint an independent third

party to monitor the parties’ compliance with their obligations under the Commission’s

order.

When the parties have proposed divestiture of less than an autonomous, on-going

business, the parties often need to provide additional assistance to the buyer. If that assistance

perpetuates a relationship between the parties and the buyer, or imposes complex or highly

technical obligations on the parties, the staff will recommend that the Commission appoint an

independent third party to monitor compliance with the Commission’s order. These monitors

are typically from the industry or have consulted to the industry so that they have appropriate

expertise and know-how, and they have no financial or other tie with the parties or the buyer.

They serve as the “eyes and ears” of the Commission and the staff. The obligation of the

monitor is to the Commission; however, the parties will be responsible for compensating the

monitor.

Often, the parties recommend the monitor, including the category of monitor referred to

as “hold separate trustee” or “hold separate monitor” (see discussion below). The most effective

monitors have been those who established a positive working relationship with the parties as

well as with the buyer. For that reason, the first candidates that the staff considers typically are

those the parties suggest. The parties can expedite the matter if – when it appears that

appointment of a monitor is likely – they have investigated possibilities early and have provided

names to the staff. The staff has rejected candidates the parties have suggested when there

appear to be conflicts resulting from stock ownership or pension benefits. In some cases

(typically when expertise of a highly technical nature is required), the staff has rejected

candidates who do not have the requisite expertise.

If a monitor is required, the staff will insist that the monitor be named in the order, or at

least agreed to before the staff forwards its recommendation to the Commission. Ideally at that

point, the parties and the monitor will have already finalized and executed an agreement. The

staff must review and evaluate this agreement as well, and the staff will be available to review an

agreement as soon as the parties have drafted one. Some previous monitor agreements are

available on the Commission’s web site and might guide the parties; however, as staff points out

consistently: each case turns on its own facts, and therefore unique provisions in the applicable

monitor’s agreement may be required. The staff will ensure that the agreement gives the

monitor all the authority necessary to satisfy his or her responsibilities and that the agreement

does not limit the ability of the monitor to do so.

Order to Hold Separate or Maintain Assets

16

•

If there is concern about interim competitive harm or diminution in the competitive

strength of the assets to be divested pending divestiture, staff will require an additional

order that requires the parties to hold separate the assets to be divested. Even if an order

to hold separate is not necessary, the parties will be required to maintain the assets to be

divested pending divestiture.

Some settlements raise the concern that competition may be harmed pending divestiture

of the to-be-divested assets. In such cases, the staff and the Commission will usually require a

separate order requiring the parties to hold separate at least those assets that the parties are

required to divest. In some cases, the hold separate may cover assets beyond those required to

be divested for viability or confidentiality purposes, or for other reasons. If the parties have

provided and will continue to provide any necessary services to the held separate assets, the

order to hold separate must address those services. The hold separate order also will impose

obligations to protect the confidential information of the held separate assets.

Even if no hold separate order is required, staff will typically require an order to maintain

the assets pending divestiture, to ensure no diminution in competitive strength of the to-bedivested assets pending divestiture. This may be true even if there is an up-front buyer,

depending on the amount of time the parties will control the assets to be divested. If an order to

hold separate is required, it will also include asset maintenance provisions.

The order to hold separate or maintain assets is not subject to a comment period and

therefore becomes final upon service on the parties. If additional immediate obligations are

necessary, the order to hold separate will include such obligations. For example, if the

Commission seeks to impose obligations on the parties in connection with employees, the

transfer of confidential information, or other similar conduct, the Commission will include these

obligations in the order to hold separate or maintain assets. Because even the order to hold

separate does not become final until some time period after the parties execute the agreement

containing consent order, the agreement typically includes a paragraph in which the parties

“agree to comply with the proposed Decision and Order and the Order to Hold Separate and

Maintain Assets from the date they execute this Consent Agreement.”

The order to hold separate or maintain assets may include benchmarks by which the

parties’ conduct can be measured. For example, the order to hold separate or maintain assets

may require the parties to maintain certain levels of capital spending. The order will require that

the parties submit (or identify previously submitted) plans that describe previously anticipated or

planned levels of spending, benchmarks by which the Commission and the monitor can

determine whether the parties are maintaining those levels. The staff prefers plans that the

parties have previously prepared and approved in the ordinary course of business.

The order to hold separate or maintain assets may require that the parties offer incentives

to employees to ensure that the employees (1) remain with the held separate business until it is

divested and (2) accept offers of employment from the buyer if maintaining the workforce is

important. The parties should be prepared to discuss with the staff the necessity of maintaining

that particular workforce and what incentives will be required to maintain the workforce.

17

•

The order to hold separate or maintain assets will include the appointment of an

independent third party to oversee the operations of the held separate business or monitor

the parties’ compliance with the order.

An order to hold separate or maintain assets will also authorize the Commission to

appoint an independent third party to oversee the held separate business or monitor the parties’

compliance with the order. In an order to maintain assets, the independent third party will have

functions similar to those of the monitor discussed above; he or she will be the “eyes and ears”

of the Commission and its staff, raising issues with the staff as they arise. In an order to hold

separate, the independent third party has somewhat more extensive obligations; he or she will

monitor compliance, but will also oversee the operation of the held separate business. The staff

has described the functions of that individual by analogizing to a chairman of the board.

The parties can expedite the matter if they anticipate this need and begin their own search

for an appropriate monitor as early as possible. The staff will have to review the individual’s

qualifications and the agreement between the monitor and the parties, which may slow down the

process. Acceptable monitors are those with substantive experience in the market and no

financial or other ties to any of the parties involved. The Commission has appointed individuals

with varied backgrounds to serve as monitors, including retired executives, consultants, and

lawyers with particular regulatory experience. The staff will be available to discuss the

characteristics of an acceptable monitor.

Divestiture Applications

•

In cases requiring a post-order divestiture, the respondent has the burden of

showing that the proposed divestiture meets the order’s specific requirements and satisfies

the order’s remedial purposes.

In virtually all of the Commission’s orders that require a post-order divestiture, the

respondent is ordered to divest certain assets within a certain time period “to a buyer that

receives the prior approval of the Commission and in a manner that receives the prior approval

of the Commission.” The Commission must thus approve both the buyer of the assets and the

manner of the proposed divestiture, i.e., the purchase and sale contract and all related

agreements. It is the respondent’s burden to show that the proposed divestiture – both the buyer

and the manner – meets the order’s specific requirements and satisfies its remedial purposes.8

See Dr Pepper/Seven-Up Companies Inc. v. FTC, 991 F.2d 859, 863 (D.C. Cir. 1993)

(in a proceeding in which a respondent sought prior approval of a proposed divestiture pursuant

to Rule 2.41(f) of the Commission’s rules, the court upheld the Commission’s rejection of the

proposed buyer, agreeing that respondent had the burden of proof to demonstrate that its request

should be granted), published at:

(continued...)

8

18

•

The respondent must include in its application all information and documents

sufficient to satisfy its burden and should ensure that the buyer will cooperate with the

staff’s requests for information and documents.

To obtain the necessary approvals of a post-order buyer, the respondent must file an

application with the Commission requesting approval of the proposed divestiture pursuant to

Rule 2.41(f) of the Commission’s Rules of Practice.9 There is no required format for the

application, but it must contain facts sufficient to satisfy the respondent’s burden. The

application should include a final purchase and sale agreement and all related agreements with

full details concerning financing and security provisions, if any, and all related documents.

Specifically, the application should, at a minimum, include:

(1) the buyer's name and address;

(2) a description of the buyer's business;

(3) its most recent annual report, Form 10-K, Form 10-Q, and financial statements

(which should be submitted directly from the buyer to the Commission if it is not

publicly available);

(4) the names of its officers and directors;

(5) an accounting of sales and other transactions, if any, during the previous year,

between the proposed buyer and the respondent;

(6) all documents that discuss the divestiture;

(7) a business plan or other documentation (which should be submitted directly from the

buyer to the Commission and not to the respondent) showing how the buyer will use the

acquired assets and be an effective competitor; and

(8) a complete description of the proposed divestiture and an analysis of how the

divestiture would maintain or restore competition in the relevant market and achieve the

remedial purposes of the order.

To the extent the above information (in addition to the business plan) is confidential to the buyer,

the respondent should arrange for the buyer to submit that information directly to the staff. Once

filed, applications for divestiture are placed on the public record for a thirty-day public comment

period, with the exception of information and documents (or parts thereof) for which the

submitter has requested confidential treatment.

(...continued)

http://openjurist.org/991/f2d/859/dr-pepperseven-up-companies-inc-v-federal-trade-commission

8

16 C.F.R. § 2.41(f). Regardless of the size of the required divestiture, it is exempt from

the reporting and waiting requirements of the HSR Act, 16 C.F.R. § 802.70, available at

http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=17a163536d70f643032f1c22c3266612

&rgn=div5&view=text&node=16:1.0.1.8.85&idno=16#16:1.0.1.8.85.0.46.27.

9

19

The staff will usually need to obtain additional confidential information directly from the

buyer. To facilitate the staff’s review of its application, therefore, the respondent should include

with the application the names of appropriate individuals to contact at the buyer for information

relevant to the staff’s analysis of the divestiture. The respondent should arrange for the proposed

buyer to provide this information, and any further information required by the staff, as soon as

possible.

•

The respondent’s application should include a representation that the proposed

divestiture conveys all assets required to be divested, including obtaining all necessary

consents and approvals.

To complete the application for approval of a proposed divestiture, the respondent should

include a representation that the proposed divestiture agreement conveys all assets that the order

requires to be divested and, to the extent third-party consents and approvals are required prior to

conveying any of the assets, the application should include a representation that all have been

obtained.

•

Failure to consummate the required divestiture within the time limit set forth in the

Commission’s order violates the Commission’s order.

If the respondent is required to divest assets within a specified time period, it must

complete the transaction within that time period. Filing for approval within that time period will

not satisfy the parties’ obligation; the divestiture must be consummated in time. Failure to

complete the divestiture within the time period is a violation of the Commission’s order. The

failure to comply is a continuing violation, cured only by complete divestiture. Failure to

comply thus exposes the respondent to the possibility of civil penalties of up to $16,000 per day,

until the respondent effectuates the required divestiture, as well as other relief.10

In most of the Commission’s orders requiring divestiture, the Commission is authorized

to appoint a trustee to divest the assets required to be divested if the respondent fails to divest

within the time period required. If the staff has concerns about the respondent’s ability to divest

See Section 5(l) of the Federal Trade Commission Act, 15 U.S.C. § 45(l), and the

parallel provision in the Clayton Act, 15 U.S.C. § 21(l). See United States v. Papercraft Corp.,

540 F.2d 131 (3d Cir. 1976); United States v. Beatrice Foods Co., 344 F. Supp. 104 (D. Minn.

1972); see, e.g., FTC v. Red Apple Companies, Inc., et al., No. 97 Civ 0157 (S.D.N.Y. Jan. 23,

1997) (consent judgment ordering $600,000 civil penalty for failure to timely divest); United

States v. Louisiana-Pacific Corp., 554 F. Supp. 504 (D. Or. 1982) ($4 million civil penalty for

failure to divest), rev'd on other grounds, 754 F.2d 1445 (9th Cir. 1985), penalty reinstated,

1990-2 Trade Cas. (CCH) ¶ 69,166 (D. Or. 1990), aff'd, 967 F.2d 1372 (9th Cir. 1992); United

States v. Boston Scientific Corp., 253 F. Supp. 2d 85, 98 (D. Mass. 2003) (Commission awarded

over $7 million for Boston Scientific’s violations); In re Aspen Technology, Inc., Docket No. D9310 (August 2009)(Commission settlement included re-opening original Order and adding

further obligations to remedy the effects of Aspen Technology’s violation).

10

20

the assets on time and there will not be an up-front buyer, the staff may recommend that the

Commission accept the proposed package but require divestiture, by a trustee, of alternative

assets, referred to as the “crown jewel,” if the respondent fails to comply with the original

divestiture in a timely manner. A crown jewel may include assets in addition to the ones

included in the original divestiture or it may be different assets such as the assets of the other

party to the merger. In any case, it comprises assets that the staff has concluded will be more

readily divested because, for example, the pool of acceptable buyers is larger. Appointing a

trustee is within the discretion of the Commission. For example, if the respondent has not

divested the required assets in a timely manner but is close to completing negotiations, the

Commission may delay appointing a trustee to allow the respondent time to complete the

negotiations. Whether or not the Commission appoints a trustee does not alter the fact that the

respondent’s failure to divest in a timely manner violates the order, and in either case the

Commission may seek civil penalties and other relief.

Timing

•

The parties should raise any concerns or complexities as early as possible and

consider alternatives that may expedite the matter.

The staff is unable to predict how long any particular negotiation will take; however, in

the staff’s experience, the time involved to negotiate a particular consent agreement is directly

related to the proposed remedy’s scope and complexity. Analyzing a proposal to divest an

autonomous, on-going business unit to a viable and competitive buyer will, in most instances, be

relatively simple, and in all likelihood the process will be completed quickly. As the assets that

the parties offer to divest become more limited or more complex, the staff will need more time to

evaluate the proposal, and the parties will need more time to finalize an up-front transaction, if

required. The more issues that arise with the proposed buyer, the more time the staff will need

to evaluate the buyer. As the parties present additional and different proposals that the staff must

analyze, the staff will need more time to complete the additional analyses. Thus, if time is of the

essence, the parties should consider an offer to divest more or different assets to facilitate the

staff’s analysis and possibly to eliminate the need for an up-front buyer.

If an up-front buyer is required, the more quickly the parties and an acceptable buyer

complete negotiations, the faster the case will be resolved. The parties may expedite the

investigation if they make business executives available early (and perhaps often), respond fully

and expeditiously to the staff’s information requests, submit possible monitors’ names as soon as

possible, begin obtaining third-party approvals as soon as possible, and prepare to implement an

order to hold separate or maintain assets as soon as possible. Attending to even seemingly small

details, such as having the appropriate executive available to execute the required agreement,

will expedite the process.

Parties often have timing concerns. Varied factors – some under the parties’ control and

some not – may affect timing. Sometimes, financing arrangements may terminate at a specific

point. Other times, the target company may have the right to terminate the agreement

21

unilaterally if certain timing requirements are not satisfied. The passage of time alone often

affects the value of the transaction. The staff understands these possibilities and is prepared to

consider them if at all possible. The time needed to complete the negotiations, however,

primarily depends on the proposed divestiture’s scope and complexity; thus, if timing is an issue,

the parties may have to balance their timing needs against their desire to structure the divestiture

in a particular way.

The parties should understand the Commission’s internal procedures and schedules as

they plan. When the negotiations are completed and all terms have been agreed to, the parties

will execute an “agreement containing consent order(s),” which will include all the terms

required by the Commission’s rules,11 and other necessary representations; it will also include

the agreed-to decision and order (and order to hold separate or maintain assets, if required) and a

draft of the proposed complaint. If a corporate respondent, the Commission requires the

president or chief executive officer to sign the agreement containing consent order on behalf of

the corporation. After the negotiations are complete and the agreement containing consent order

executed, the staff will complete its recommendation memorandum to the Commission and forward

the entire package to management of the Bureau of Competition and the Bureau of Economics for review.

After approval by management, the package will then be forwarded to the Commission

for its review. The Commission generally reserves two weeks to decide the matter, although it

may require additional time depending on the case’s complexity or other circumstances, and it

can sometimes act more quickly if circumstances require. The Commission may request

additional information from the staff; if responses from the parties are necessary, the staff will

inform the parties. The Commission decides the matter by majority vote. If the Commission

votes to accept the proposal, the Commission will issue a press release and place the documents

on the public record for a thirty-day comment period. The documents include the agreement

containing consent order(s), the draft complaint, the proposed decision and order, the order to

hold separate or maintain assets if required, and the analysis to aid public comment. If the

Commission does not accept the proposal, it may instruct the staff to obtain additional relief, it

may vote to challenge the transaction, or it may take no action and close the investigation.

If the consent package includes an order to hold separate or maintain assets that the

Commission accepts, those orders will be served immediately on the parties, along with the

complaint, and they will become final upon service.12 Acceptance of the proposed consent does

11

Rule 2.32 of the Commission’s Rules of Practice, 16 C.F.R. § 2.32.

12

Rule 2.34(b) of the Commission’s Rules of Practice, 16 C.F.R. § 2.34(b).

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not constitute final approval of the decision and order, “but it serves as the basis for further

actions leading to final disposition of the matter.”13

The parties may generally consummate the underlying merger when the Commission

accepts the consent agreement and places it on the public record; if subject to the provisions of

the Hart-Scott-Rodino Act,14 early termination is then granted with respect to any then-existing

waiting periods. The decision and order, however, will not become final until after expiration of

the thirty-day comment period. If the Commission receives no comments, it will usually

approve the order quickly; the order will become final upon service on the parties. If the

Commission receives comments, the staff will evaluate them and make any appropriate

recommendations. In all cases, the Commission may determine to make the order final as first

accepted, renegotiate its terms with the parties and take such action as may be appropriate,

determine not to make the order final and to close the underlying investigation, or reject

settlement and challenge the merger.15 Once the order becomes final, it may be modified only

according to the Commission’s Rules of Practice.

The timing requirements for approval of a post-order divestiture are similar to those

described above. The parties file an application for approval as required by the Commission’s

Rules of Practice.16 Once the parties file their application, it is placed on the public record for a

thirty-day comment period. During the comment period, the staff will review the materials filed

and evaluate the buyer and the divestiture agreement. It will arrange to interview any third

parties from whom information is required. It will not, however, complete its recommendation

until the comment period expires and all issues have been resolved. If the Commission receives

no comments and the staff has obtained the information it needs and has resolved its issues, the

staff will forward its recommendation to its management quickly. If the Commission receives

comments, the staff will review them and prepare the appropriate recommendation. Following

management review, the recommendations will be forwarded to the Commission. The

Commission usually reserves two weeks to make its decision. If the Commission approves the

proposed divestiture, it will notify the parties and the buyer, which can then consummate the

divestiture. The parties may not consummate the divestiture without the Commission’s

approval.

13

Rule 2.34(a) of the Commission’s Rules of Practice, 16 C.F.R. § 2.34(a).

14

15 U.S.C. §18a.

The great majority of proposed settlements have become final orders without any

modification. We are not aware of any instance in which the Commission has rejected a

settlement after the comment period and then brought a challenge.

15

16

Rule 2.41(f) of the Commission’s Rule of Practice, 16 C.F.R. § 2.41(f).

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The staff is willing to work with the parties with respect to their timing needs; however,

the parties must raise these needs as early as possible and with as much factual support as

possible. The parties must also remember that the staff’s objective is to recommend to the

Commission a proposed settlement that, if accepted, will maintain or restore competition in the

relevant market; it will take into account the timing considerations of the parties to the extent it

can do so without compromising those objectives.

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