# F E D E R A L

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Aftc%3A424adf4cb6e17c96

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

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F E D E R A L

T R A D E

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M E R G E R

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B E S T

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C O M M I S S I O N

R E M E D I E S

P R A C T I C E S

W O R K S H O P

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October 23rd, 2002

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Association of the Bar of the City of New York
42 West 44th Street
New York, New York

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Moderator:

Daniel Ducore, Asst.
Director FTC Bureau of Competition

Panelists:

Barbara Anthony,
Director, Northeast Region
Phillip Broyles, FTC
Mary Coleman, FTC
Christina Perez, FTC
Harold Saltzman, FTC

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Chair of the Antitrust
Committee: William H. Rooney, Esquire

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Presenters: Jim Calder, Esquire
Joseph D. Larson, Esquire
Linda R. Blumkin, Esquire
Ron Bloch
Christopher J. MacAvoy, Esquire
Gary Kubek, Esquire
Albert Foer, Esquire
Michael H. Byowitz, Esquire
Fiona Schaeffer, Esquire

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MR. ROONEY: Good afternoon.

My name is Bill

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Rooney.

And I'm Chair of the Antitrust Committee of

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the Bar.

It's my pleasure to welcome you this

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afternoon.

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able to provide the venue for today's FTC workshop on

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merger remedies, as another in a happy collaboration

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with the FTC, in particular the northeast region of the

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FTC, over recent years.

The Antitrust Committee is pleased to be

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With that, I would like to turn the program

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over to Barbara Anthony who is the Director of the

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Northeast Region, who will introduce some of the panel

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and today's program.

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MS. ANTHONY: Thank you very much.

Good

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afternoon, good morning everyone.

I guess it's at this

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point technically afternoon.

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Regional Director of the Northeast Regional office of

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the FTC.

I'm Barbara Anthony, the

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And it's a pleasure to welcome you all.

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want to start off by thanking you very much for coming

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out today, for coming to this remedies speak out, as it

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were, and being willing to make a formal presentation

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or participate in the discussion with remarks or

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comments about the discussion that is going to take

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place.

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And I

We very much appreciate your willingness to

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participate because frankly, we could not do it unless

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you all came and unless the organized Bar was willing

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to come out and to talk with us publicly about issues

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that concern you and issues that you would like to see

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us address.

So we thank you very much for doing that.

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I know a number of you were here several months

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ago when we hosted the best practices merger workshop,

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which was also co-hosted by the City Bar's Antitrust

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and Trade Regulation Committee.

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echo words of warmth and the nice relationship that has

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evolved between our committee and the events we have

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been putting on.

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for coming out to do this.

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workshop were all very seriously considered by the

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bureau as it goes about developing recommendations as a

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result of that workshop.

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results that you will be gratified and pleased to see

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that your comments were well received and seriously

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considered.

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And I also want to

I want to thank you all the last time
And your comments from the

And I think when you see the

So, there is food, light refreshments, courtesy

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of Bill Rooney and the City Bar Antitrust Committee.

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Please help yourself during the course of this

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workshop.

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And, I think what I would like to do right now is to

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turn the podium as it were, if there were one, I would

And thank you again for participating today.

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be turning it over to my friend and colleague from

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Washington the Assistant Director of the Compliance

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Office in the Bureau of Competition, Dan Ducore.

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And Dan will introduce of rest of our friends
and colleagues.
MR. DUCORE: I'll say this later.

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going to do today is listen.

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intimidated by the number of people here.

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going to say much.

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What we are

So you shouldn't feel
We're not

Let me start by thanking on behalf of Joe

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Simons, the bureau and Tim Muris on the Commission.

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want to thank Bill Rooney, the New York City Bar

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Antitrust and Trade Regulation Committee for

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co-sponsoring this workshop, for providing the venue

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and the refreshments. We appreciate that.

I

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Also I want to thank Barbara and Susan Raitt,

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and other people from the New York Regional, Northeast

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Regional office for all their work in getting this

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organized, getting the word out, e-mails and other

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things, to have such a good turn out.

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thank all of you people who both are going to present

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views and other people who may react to views

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presented, and anybody who has taken the time and

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effort to be here today.

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And I want to

In addition to Barbara and myself I'm Dan

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Ducore, I'm also -- I'm going left to right Christina

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Perez, an attorney in one of the merger divisions in

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the Bureau of Competition, Mary Coleman, Deputy

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Director in the Bureau of Economics in Washington,

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Harold Saltzman an economist with the Bureau of

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Economics Phil Broyles, the Assistant Director for one

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of the merger divisions in the Bureau of Competition.

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And also, there is Susan Raitt, from the Northeast

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Regional office.

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pulling this together.

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She did a lot of background work

Naomi Licker, from my office who we have,

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worked a lot on getting the message out in terms of

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frequently asked questions, did a lot of the work on

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the divestiture study that was published a few years

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ago, and is becoming whether she will admit it or not,

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an expert on merger remedies.

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The June workshop was a good start for the

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discussion we're trying to have about what works and

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what could be improved in the area of merger remedies

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or merger negotiations.

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The consents that we work on we're really not

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talking about litigated orders or the Commission, where

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the Commission makes its decision whether there is a

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violation on an order.

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The results from the first workshop have been

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posted on our website.

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the other things that have been posted on the mergers

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best practices.

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public page for the FTC.

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lively discussion based on the -- on what we have heard

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from people who want to present.

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transcript will be posted.

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It's in the same location as

It appears at the bottom of a main
I think we had a pretty

And today's

There are other materials.

As we receive them

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they are being posted on that general portion of our

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web page.

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people have said, in addition to what people say today.

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As I stated, our job really and our instruction

So I recommend people go there and read what

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from Joe Simons, was go up there and listen to what

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people have to say.

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much telling you what we think.

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through press releases, cases, through speeches,

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through the FAQ's, that were posted.

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lot of ways the Commission and staff have gotten word

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out.

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to do is hear specific suggestions and ideas about some

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of the things that we're getting right.

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It would be nice to hear we get

We really want to -- it is not so
We have done that

And there is a

And we don't need to do that again.

What we want

some of these

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things right; things we could be doing better, or you

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think we're getting things clearly wrong, we need to

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hear that as well.

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The underlying position of -- I'll put out so

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you can understand the context, is that we understand

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that the parties in specific negotiations are

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frequently going to disagree about the specifics of a

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particular remedy.

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beast, when you settle a potential antitrust case.

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And that is just the nature of the

But with that understanding and with the

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understanding that our job at the agency is mainly to

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assure, once we decide there is a problem and once we

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agree to try to settle, that that settlement minimizes

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the risks to consumers that the remedy will fail.

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That is our going in position.

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sure that there are things we have done that could be

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done perhaps differently or better perhaps, and mainly,

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what we want to hear about are suggestions for

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improving, getting to a remedy that gets our goal met,

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but perhaps can reduce the cost and time and money to

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the parties.

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But nonetheless, I'm

Some people have already expressed an interest

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in presenting views.

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amount of that may be in the context of supermarket

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divestitures.

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And I get the sense that the fair

It is not the agenda for today's session.

But

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I think it's probably appropriate that that may be the

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focus of a lot of the remarks, because those kinds of

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cases raise issues like mix and match and clean sweep,

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just to use colloquial phrases that get handed around

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at times.

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Also raise the question of our use of up front

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buyers, use of crown jewels, orders to hold separate,

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issues about third party rights, and all those

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aspects.

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All of those issues that can come up in a

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merger cases, frequently come up in supermarket merger

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cases.

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some of the remarks will be directed at those kinds of

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cases.

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about how other industries are different and may call

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for different treatment and different assumptions on

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our part when we go into negotiations; for example, are

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pharmaceutical mergers different enough from other

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kinds of mergers that they raise issues both in terms

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of remedy and in terms of delayed negotiations and the

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whole remedy process should work.

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particular industries differ from the more general

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manufacturing kind of industries that we

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have a lot of cases in, and what things might work in

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one situation but perhaps don't work in another

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situation so that we should be aware of that and not

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make the same assumption when we go into a particular

So I think it's appropriate that as I expect,

But I think it would be also useful to hear

How do those

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case.
That is really it.

I don't have anything more

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to add, other than to say, that I'm going to speak --

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on behalf of the reporter I'm going to ask that you

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identify yourself, speak clearly, and the reporter may

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remind people if they forget to identify who they are.

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We want to have a pretty good transcript.

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going to try to make sure we don't have people talking

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on top of each other and things like that.

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So we're

If you feel after this you want to submit

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something that is fine.

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address is remedies@ftc.gov. And you can send us

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anything you want to have considered on our website.

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And the usual caveat I think needs to be said

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There is an -- I think the web

again, which is whatever we may say up here today,
doesn't reflect -- reflects only our own views and not

the
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views of the Commission or the individual

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commissioners.

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first people who are going to make presentation are

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from the Antitrust Committee of the City Bar, Jim

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Calder and Joe Larson.

With that, as I understand it, the

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I think what we will do is I don't have a

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written format in mind, if people want to react to

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comments after some presentations are made, then we'll

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move on to the next presenter, that is fine.

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count says eight or nine people speaking, ten

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minutes each.

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not required to be out of here at the strike of 1:30.

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MR. CALDER: My name is Jim Calder. I'm here to

Keep an eye on the clock, although we're

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present, address on behalf of the comments of the

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Antitrust and Trade Regulations of the City Bar and the

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Association Bar.

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9
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My comments are going to be more of a thematic,
conceptual nature.

Joe Larson will be more specific.

In putting together the written submission that

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was made for this program, there is I think an

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underlying theme that may not be fully expressed, which

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is, that there seems to be a disconnect between the

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basic theme or purpose of antitrust which is faith in a

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belief in the competitive process and competitive

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markets and the remedies process in merger cases.

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talisman for antitrust is that if markets are workably

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competitive, the government and the rest of us don't

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need to worry very much, because competition will work

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its magic.

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The

When it comes however, to divesting assets in a

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merger case, it seems that we lose faith in the

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competitive process.

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auction process where the highest bidder will

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presumably be the best person to acquire the divested

And it seems that we distrust an

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assets.
And instead, there is a tendency for lawyers

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and economists to superimpose their views or sense, or

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unscientific beliefs on the auction process.

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ironic indeed, I guess, that for antitrust lawyers we

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should have this disconnect or loss of faith in the

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competitive process when it comes to divestiture

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remedies.

And it is

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And it seems to, without some real persuasive

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evidence, that the competitive process fails when it

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come to divestitures.

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process, at least in an auction context when we're

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dealing with a merger situation.

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We shouldn't give up on that

Now that theme is not a theme that underlies

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every comment in the Bar Association's submission.

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it's a theme that underlies a number of them.

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thought it important to highlight it at the outset of

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what will otherwise be very brief remarks.

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But

And I

In the submission the committee identified a

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number of basic principles that we believe should guide

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the merger remedies process.

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remedies process should be narrow and focused solely on

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curing the anti-competitive evil that in the

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commission's view renders the merger either illegal or

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at least of questionable legality.

The first is that the

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Efforts should not be made as an aside.

They

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are in -- other parts of the world do use the remedy

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merger as a way to re-order or reorganize the market.

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The remedy should be limited and surgical in

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scope to the extent possible so that only that which

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infects the merger is excised.

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The second principle is that in looking at

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merger remedies and divestitures in particular, a rule

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of one hundred percent success is probably unrealistic

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and to a great extent, counter-productive.

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business world as we all know, many, many mergers fail.

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Many acquisitions of assets fail.

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the competitive process that things fail, businesses

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fail, plans fail.

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which is simply another acquisition of assets, a

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requirement that it succeed in all cases, may be too

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high a standard, and is unrealistic in a competitive

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market.

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In the

It's the nature of

To impose on a divestiture remedy

It has potentially the counter-productive

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effect of scuttling a transaction that may have strong

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efficiencies in its own right, but fails to offer an

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assurance that the merger remedy intended to excise the

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one piece of the deal that raises a competitive

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problem, will be a one hundred percent effective

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remedy.

So in insisting on perfection on the remedy

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side, we may be losing efficiencies in the basic deal

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or in the deal that is before the Commission.

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Principle number three is the notion of

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forcing competitors to collaborate as part of the

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remedies process.

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transactions there are provisions in consent decrees

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requiring the parties to the deal to provide assistance

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to the buyer of the assets or business being divested.

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Those buyers are now, in many cases, competitors of the

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divesting parties.

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1 hats, we counsel our clients to not talk to their

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competitors or to have much if anything to do with them,

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seems both ironic and somewhat troubling, that we're

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telling them they are obligated to collaborate with

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their new competitors or with competitors who are

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competitors of long standing, but who have now bought

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some of their assets.

I think in an increasing number of

And since when we wear our Section

it

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Principle number four, the little guy should

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not be excluded from the acquisition of divested assets

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process.

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in supermarket mergers, but I'm not going to go there,

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that smaller acquirers are disfavored because they may

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not have the deep pockets or the throw away if you

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will, to compete effectively.

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divestiture study reached an opposite conclusion that

There has been a sense perhaps in particular

The Commission’s 1999

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small acquirers are as successful and in some cases,

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more successful than large acquirers.

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That being the case, to the extent there is

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any concern about small acquirers, it would seem that

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that concern is ill-founded.

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the case if in an auction, a small buyer wins the

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auction on the basis of price bid.

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is prepared to put up a higher percentage of his

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assets, to acquire the divested assets than a large

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buyer, one would think that that is a signal by the

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market that that will be a committed and an effective

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acquirer and operator of divested assets.

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That would be especially

If a small acquirer

My last point then, I'll subside and yield to

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Joe Larson, is the notion of information access.

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the divestiture study, one of the key findings that the

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Commission made, was that when divestitures fail, it's

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frequently a failure of the information process and

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notably of the due diligence process.

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that that is a real source of divestiture failure, it

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would seem that the way to fix that problem would not

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be to engage in the practice of picking and choosing

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buyers of divested assets or businesses, but rather to

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look at the information and due diligence process

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directly, and see what should be done to improve that,

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to eliminate the risk that the divestiture will fail.

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To the extent

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With that, I would like to thank you for your
time and attention.

And I'll yield to Joe Larson.

MR. LARSON: Joe Larson, from Wachtell, Lipton,

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Rosen and Katz, on behalf of City Bar.

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comments on specific remedies that are addressed more

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fully in the short paper we submitted.

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probably most importantly is the buyer up front concept

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does more to distort the remedies process than

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probably any other provision.

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create a very strong incentive for parties to settle as

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quickly as possible, identify a buyer as quickly as

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possible, and it effectively makes an auction impossible,

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because we just -- it would just simply take too long.

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I think it unnecessarily shortens the due diligence

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process that a divestiture buyer may want to engage in.

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Parties may be willing to give in return for less due

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diligence, simply allow the preferred divestiture buyer

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to pay less and assume greater risk, because again, the

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parties are anxious to close their transaction.

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I had a few

I think

What it tends to do is

In addition it also tends to exclude small

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buyers from the process because when advising clients,

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it's the up front buyer that is likely to be most

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acceptable to the Commission.

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buyer with brand name recognition.

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buyer tends to get pushed to the side, in the buyer up

The large buyer is the
So the smaller

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front context even though they may be willing to pay

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more eventually or whatnot again, with the hope of

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speeding the process along.

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is a punitive provision, and should be used as such,

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preferably just in the instance of a demonstrable wrong

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doing on the part of the parties.

The crown jewel provision

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Alternatively, there are situations in which if

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there is a creative or new divestiture remedy from the

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main remedy, a crown jewel provision might make sense

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as a back stop in case a new or creative solution winds

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up not working.

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The single buyer requirement, especially in the

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context of retail mergers, tends to exclude smaller

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buyers from consideration.

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in terms of the single buyer requirement or allowing

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multiple buyers is, multiple buyers in a given market

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may actually be far more pro-competitive, medium to

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longer term, to the extent it creates multiple

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additional competitors with toe hold or perhaps even

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stronger platforms in the market from which they can

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grow.

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And another important point

And finally on the hold separate provisions, it

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would -- we would recommend considering moving up the

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hold separate concepts to earlier in the process, to

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allow parties to close on non problematic portions of

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the transaction, holding separate the potentially

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problematic assets and allowing the Commission to

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conduct its investigation of those, and ultimately

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reach its decision at that point, having held the

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assets separate so that they are ready for divestiture

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if need be.

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I guess the one question we have is the

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perception that a number of these requirements are

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becoming more preferences again as opposed to being

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imposed as a matter of course or almost automatically,

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and wondering if there has been a change in the

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Commission's position in terms of requiring some of

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these provisions in consent decrees.

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MR. DUCORE: I'll answer that.

I won't respond

15

to the other point.

I think it was probably always an

16

over reaction to view those positions as requirements,

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things like buyer up front and all of those.

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regardless I think it's true that it got viewed, that

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position got viewed as an insistence and a

20

requirement.

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there is a recognition that we need to get the word out

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that as even as in the past, but nevertheless to

23

underscore it now, that those are more sort of

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assumptions going in on things we probably will need

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unless we can be convinced or persuaded that in a

But,

And without speaking for Joe, I'll say

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particular case we really don't.

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the up front buyers you look at some of the more recent

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consents where the agency has not been insisting on up

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front buyers I think.

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generalize for each case from just a few cases.

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there is a recognition if a business unit is being

7

divested, it's something that has stood alone in the

8

past, it's more likely to be able to -- it raises less

9

of the issues that would lead us to a buyer up front.

10

And especially with

So those -- again it's hard to

So, you're right.

But

And the perception is we're

11

more flexible.

I think it is not a dangerous

12

perception for people to have that we're more flexible,

13

although I think people on our side would say whether

14

people recognize it or not, we always thought we were

15

willing to listen on every case.

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I don't have any batting order here.

So if

17

someone would like to volunteer and speak next or give

18

some reaction to what was just said.

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MS. BLUMKIN: Linda R. Blumkin, partner with

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Fried, Frank, Harris, Shriver. I just had a very few

21

points that I wanted to make.

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like to say that putting out the frequently asked

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questions about merger consent order provisions I

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thought was a very useful way to communicate what the

25

agency positions actually are, because some of these

I guess first, I would

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have been shifting and evolving over time.

And

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peoples' experiences are so limited in terms of the

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actual contacts that they have had with staff.

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was very interesting, and indeed, sometimes quite

5

surprising to see what the policy actually is.

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would urge the staff to try to keep those current

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through some mechanism.

8

aftermath of these workshops that there is probably

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going to be additional thinking, reporting, and

10

guidance in the merger remedy areas, which would be

11

very helpful.

That

And I

And I'm assuming in the

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Of course, the initial divestiture study was an

13

incredibly important piece of work in terms of actually

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going back, looking at what works, what doesn't work,

15

and trying to deal with these issues in a more

16

methodical way than anything I'd seen in my previous

17

practice, both when I was at the Commission and in

18

private practice, going back a number of years.

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In terms of the various devices that the agency

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has used which the City Bar has been commenting about,

21

I think where I personally come out is to say that

22

having an eclectic, an assortment of remedies that can

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be used in appropriate situations, makes a lot of

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sense.

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is required is in knowing when the various devices are

And of course, the hard part, the wisdom that

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necessary and are appropriate, and trying to take these

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general principals and looking at this variety of tools

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and adapting them to different industries, different

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sizes of transactions, high tech, low tech, retail, and

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trying to come up with something that makes sense in

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the context of a specific case is what is the art here,

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as well as the science.

8

And it is not a situation where one size fits

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all.

And I don't think that you should attempt to take

10

all merger remedies and fit them into one mold.

11

question that Dan put at the June workshop which I

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don't know if it was responded to.

13

curious to hear what others think about this as well,

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is the question of remedies being considered too early

15

in the process.

16

something that should be considered really almost from

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the inception of an investigation, because when you're

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trying to see whether in fact, there is a violation,

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think about what it would take to fix it as you're

20

testing your assumptions can inform your thinking as to

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whether there really has been a violation at all and

22

thinking about whether at the end of the day there is a

23

remedy that makes sense that would accomplish

24

something, saves a lot of time if you do that in the

25

first month or second month of your investigation,

One

And I would be

And I would think that remedy is

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1

instead of in the fifteenth month of an investigation,

2

when obviously enormous resources on the private side

3

and on the FTC side have already been spent.

4

When I say that remedies should be considered

5

very early on, I don't know that that necessarily

6

involves the participation of Dan and his colleagues.

7

It may or may not, depending upon what the particular

8

remedy is that folks are thinking about.

9

concept of why are we doing this, where are we going

10

to end up, what can we do that might solve this

11

possible problem that we're concerned about, is I think

12

a very useful exercise.

13

But the

One of the things I have never really

14

understood also, is the Commission's reluctance at

15

least in recent history to consider the fix it first

16

solution, to the same extent that the Justice

17

Department does, because in transactions that I have

18

handled before DOJ, this has in appropriate cases been

19

a very efficient and sensible way of resolving

20

situations at a very early moment.

21

has something to do with the institutional framework,

22

or history, or what.

23

consideration of the potential for fix it first whether

24

it's by way of divestiture, licensing or whatever makes

25

sense in the context of a particular transaction.

I don't know if it

But I would urge more

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1

One thing also I noticed in looking at the

2

transcript of the June workshop, I think it was

3

something Christina said talking about third parties,

4

and the sense I think she said that she had gotten from

5

the private Bar when third party consents are required

6

in order for a remedy to be effective, that the third

7

parties are perceived as extortionists basically.

8

what I would urge is a healthy skepticism about third

9

parties, but also a healthy skepticism about the

10

parties to the transaction, and what they are saying

11

about the impact that their choice of assets to divest

12

is having on people who have sometimes been their

13

co-venturers, partners who have ongoing relationships

14

with them, who are profoundly impacted when they find

15

their -- even though they have -- they may have

16

contractual provisions saying that agreements cannot be

17

assigned or transferred without their consent, that

18

they are then being told that obviously a consent order

19

takes precedence over everything and they've

20

effectively lost their rights and lost any ability to

21

direct their own future relationship with that bundle

22

of assets, or that business, or whatever it is that is

23

being divested.

24
25

And

That was basically all that I wanted to say,
thank you.

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1

MS. PEREZ: I just want to put out there, when

2

I'm negotiating consents, third party rights tend to

3

come up not infrequently and they -- in my experience I

4

have not found a way of being a part of this that is

5

helpful to all sides.

6

middle of the parties, the third parties, the FTC.

7

I'm always trying to come up with a way to balance all

8

of those interests.

9

I tend to feel like I'm in the

Everyone has a valid point.

And

And I never know

10

which way it goes.

So what I would put out to the Bar

11

is if you have a solution when we get to this point,

12

please bring it up to me.

13

this point, I just don't have a remedy to fix this

14

problem.

I'm open to all points.

At

So we're open to suggestions.

15

MS. BLUMKIN: If I could pick up on that one.

16

noticed at least one of your recent orders, you have

17

imposed a best efforts obligation on the parties to the

18

transaction to secure necessary consents identifying

19

quite specifically various contracts where consents are

20

required.

21

But, at least in the context of that one

22

experience, I don't feel that even though it was

23

obvious that somebody at the Commission was sensitive

24

to the issue they were trying, I don't know that the

25

parties to the transaction had really taken that best

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1

efforts obligation as seriously as one would like.

And

2

then again, the question is, how someone at the

3

Commission winds up trying to sort that out, dealing

4

with what best efforts means in terms of trying to deal

5

with this kind of issue and secure somebody's consent.

6

I don't know.

7

that kind of clause is something that is going to

8

become standard in the future, and if so, what

9

mechanism realistically you could have to enforce it.

10

MR. DUCORE: Let me comment on that last point.

And I would be curious to know whether

11

I don't think we're going to be enamored of a best

12

efforts test as opposed to an absolute requirement to

13

obtain rights, except in cases where there are other --

14

and I would have to go back and look at the orders

15

specifically but there may be cases where you know,

16

other protections are in place.

17

doesn't play out, in other words, if third party rights

18

cannot be obtained, there is some other way to get at the

19

competitive remedy we're trying to get, we're not going

20

to insist that you obtain third parties' rights and put

21

yourself perhaps in the position of being held up.

22

Nevertheless you've got to make best efforts there

23

first.

24

will trigger.

25

If that nevertheless

And then if that fails, this other mechanism

And I think, depending on the case, if that is

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a realistic, a competitively realistic remedy, we'll

2

certainly entertain that.

3

a third party right is critical to the remedy being

4

achieved, we don't get enough in my view, if all we get

5

is a best efforts obligation, because you can make best

6

efforts and the third party may want more than that, we

7

start researching state law and what kind of reasonable

8

best efforts, we may not have a case under the law, but

9

nevertheless, we also don't have a remedy.

10

But if it is something where

So I think we're going to be reluctant to put

11

ourselves in that position unless there is some kind of

12

fall back.

13

need to have the absolute requirement that third party

14

waivers or whatever they happen to be in that case be

15

obtained initially.

16

But if there is a fall back, you may not

MS. COLEMAN: I also think on the third party

17

issue of the rights and requirements that are important

18

to the divestiture and there are often third party

19

issues that come up that don't have any competitive

20

concerns, they have to deal with contractual

21

relationships between parties and that is where,

22

although sometimes people make arguments to us to try

23

and get us involved in that, that is where we can -- we

24

want to stay away from that, and let the parties deal

25

with those contracts, deal with those issues

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1

themselves.

2

MR. DUCORE: I would underscore what Chris Perez

3

says.

4

contractual relationship we're talking about and what

5

alternatives may be out there.

6

obviously in the best positions to know that.

7

we get into these conversations they should not be shy,

8

and say, this is what we can do, this is what we cannot

9

do.

10

to get a consent from a third party.

11

Each one of these cases turns on a particular

And the parties are
So where

This is where we might feel vulnerable if we have

But this is something else that could actually

12

get you where you need to be FTC and you should

13

entertain that.

14

we can come to grips with it.

15

MR. BLOCH: Thank you.

We really need to hear that early so

I just have a few issues

16

to talk about very briefly.

There has been some

17

discussion in this workshop and previous workshops

18

about various aspects of the Commission's divestiture

19

policies.

20

front buyer.

21

that covers all of those policy questions, and that is

22

everybody should know what the Commission's policy is.

23

It should be a matter of public record, so that

24

everybody knows the rules of the game.

25

policies are adopted, the Commission needs to make sure

Mix and match, zero delta single buyer, up
I think there is an over arching issue

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And once those

27

1

that the staff is not sending conflicting signals to

2

the merging parties or to would be buyers of the

3

divestiture, which brings up the second point.

4

are a number of instances in the up front buyers, the

5

up front buyers have already been mentioned today, that

6

somewhat in conflict with the ability of smaller would

7

be purchasers of the assets to be divested to get into

8

the game.

9

be changes in the mechanics, whether it's going to be

10

an up front buyer or it's going to be a buyer pursuant

11

to a final order, there must be a mechanism adopted by

12

the Commission that assures that all interested

13

purchasers of those assets have knowledge of what the

14

assets are to be divested and have an equal

15

opportunity, regardless of their size, to enter the

16

bidding process.

There

is

17

So, the second point I raise is there must

Third point I would like to deal with is

18

somewhat related to that.

19

allowing the asset divestiture transaction to close

20

before the public comment period is over.

21

And it's the problem of

Now, I will not attribute to the Commission any

22

malevolent thought in doing that.

This is especially

23

true in retail generally, grocery industry in

24

particular.

25

years ago that ordered divestiture of a number of

There was an order entered into about two

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1

supermarkets.

2

able to close on that transaction, before the comment

3

period, is which is -- now it's only thirty days.

4

used to be sixty days.

5

ended, the stores were sold to the up front buyer.

6

Commission reserved to itself, the option at the end of

7

the comment period of ordering rescission of the

8

transaction.

9

And the buyer, the up front buyer was

It

Before that comment period
The

Now, as I say I won't attribute any malevolence

10

to the Commission in taking that approach.

11

grocery transaction in particular, if the Commission

12

were to actually order rescission, you get the worst

13

case situation you could possibly think of, in grocery

14

retailing, because, given the nature of that entrance,

15

those stores could have had four different banners

16

flying over the front door in a period of two or three

17

months.

18

But in a

And that is death to a grocery store.
I think it's equally applicable to most retail

19

stores.

I'm not suggesting by any means that a

20

rescission provision with an early closing might not

21

make sense in some situations.

22

not in retail.

23

situation, where the name of the owner of the factory

24

is not a critical issue from the standpoint of the

25

purchasers who buy the outlet of the factory, then, if

But they certainly are

If you have got a manufacturing

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1

there are circumstances that warrant that kind of an

2

approach, it might be appropriate.

3

you to consider the impact that that kind of a remedy

4

can have on retail stores generally, and grocery stores

5

in particular.

6

But I highly urge

And my final point again, this is applicable

7

to grocery, we have today, the highest level of

8

concentration in the national market that we have ever

9

had.

10

percent of supermarket sales.

11

number had better than doubled to thirty-nine point

12

three percent.

13

forty percent, forty point four percent.

14

In 1993, the top five firms represented seventeen
By the year 2000, that

At the end of last year, it was over

One of the reasons this is happening is that a

15

tremendous number of mergers of large supermarket

16

operators are analyzed only from the selling side.

17

Where do these people compete and if necessary we'll

18

have some stores divested.

19

grocery merger enforcement that was adopted years and

20

years ago, long before we had the level of

21

concentration in this country that we have today.

22

it is NGA's position that the time has come to bring

23

merger analysis up to the level of the market structure

24

that we have today.

25

That is an approach to

So

And what we're suggesting is that you look not

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1

only at the selling side of the competition, but look

2

at the buying side.

3

when two chains merge who don't compete as sellers and

4

yet, that merger gets probably early termination from

5

the FTC, and you have allowed perhaps a chain to double

6

its size and double its purchasing clout with its

7

suppliers and further disadvantage smaller

8

competitors in the market.

9

What kind of problems can arise

We say this is a problem that if it isn't faced

10

immediately the Commission is going to lose its

11

opportunity to prevent a market that is dominated by a

12

half dozen or so chains and they will be selling all of

13

our groceries.

14

MR. DUCORE: Let me ask a question -- two

15

questions.

16

it's an up front buyer or a post order divestiture, the

17

way we have done it is to say to the parties, bring us

18

a buyer.

19

want to weight the argument, if we're going to give

20

smaller firms, the less obvious buyers a better

21

opportunity, seems they have to change the mechanics of

22

even just that process of saying to the parties, bring

23

us somebody.

24
25

One is, since historically the way, whether

If we're going to do things to -- I don't

So that is question number one.

And question number two, it sounds like you're
saying with this grocery market that buyers up front

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1

can't work because we're compressing everything.

2

then we have this comment period.

3

you're saying is, we have to have a post merger, a post

4

order divestiture, in grocery cases so we can have this

5

process all play out.

6

And

It sounds like what

If we do that, then I guess it's a question

7

number three, what do we need to do to protect

8

competition while that's all playing out?

9

MR. BLOCH: I know the question and it's a good

10

one.

Number one, I don't contend that a buyer up front

11

can't work.

12

the buyer up front got started in the first place,

13

between getting a buyer quickly and getting the deal

14

closed or taking a little more time, certainly most of

15

the time is waiting to start shopping the assets until

16

after the divestiture order becomes final.

17

You have a trade off and it is a reason

And I think there is room in the middle between

18

those polar extremes.

And I think that the third

19

question, how do you do it, is by adopting some

20

procedures that require the party under order or

21

who will be under order, to make sure that before the

22

buyer up front is chosen, that interested parties get

23

word of the asset package to be divested, and have a

24

chance to do a due diligence and to enter a bid on the

25

assets.

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1

The City Bar talked about the auction process.

2

And you can't have an auction process unless people

3

know there is an auction.

4

major problems that I think that process has had.

And that has been one of the

5

Another approach and it may be even a companion

6

approach, would be to require the party who is selling

7

the assets to be divested, to provide information when

8

they present that buyer to the Commission, and apply

9

for approval of the sale to that buyer.

10

party give the Commission information, how did you

11

disseminate the facts, that these assets were

12

available.

Who did you disseminate them to.

13

responded.

What was the nature of the response that

14

you gave to people who were interested.

15

They make the

Who

As a matter of fact, I think this is spelled

16

out in our written statement, so I won't go through the

17

whole litany now.

18

But, at that point, you in a -- the compliance

19

division, would have before them, evidence to show how

20

fair, how adequate was the process by which the buyer

21

was ultimately determined.

22

MS. COLEMAN: In response to that, I would like

23

to see what other people have to say in answering that

24

is, that should that be the role of the Commission to

25

sort of make sure that everyone who was interested in

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1

the assets has an opportunity to bid on them.

Is an

2

auction process for the goal that we're looking for

3

which is to have the anti-competitive be remedied, is

4

that process the best process.

5

should be looking for so that work -- so there should

6

be a broad base and we should leave it for the parties

7

to assess, to go through the party of it to some extent

8

to understand what is happening.

9

question out, should that be the role of the Commission

10

to give all people.

Is that something we

But just to put that

11

MR. LARSON:I think going back to the central

12

theme of the City Bar's comments, I think that should

13

not be the Commission's role.

14

for the competitive marketplace to operate.

15

It should be a respect

And some parties choose even when selling

16

themselves in transactions that raise no competitive

17

issues, some will go with someone up front, get the

18

best deal they can, they will forego an auction

19

process.

20

Others will choose to go through an auction

21

process.

There are a number of ways to structure a

22

deal, to go through a deal, I think, unless there is

23

some reason to think that -- some good reason to think

24

that that market process will fail, I don't think the

25

government should intervene.

However, structurally, by

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requiring an up front buyer and requiring a single

2

buyer for assets, you're stacking the deck against

3

smaller buyers.

4

Again with the up front buyer process, the

5

parties are not going to go through a long option

6

process, because they are looking at -- I have got

7

fifteen million dollars or thirty million dollars a

8

month in synergies, that every month I wait, I'm losing

9

time, value of money, let's just get this done, let's

10

just dump this divestiture.

11

Kroger in as the buyer, I'm going to do a lot better

12

than if I bring in some local chains in terms of

13

getting through quicker.

And I know if I bring

14

And on the single buyer issue again, larger

15

pieces are just tough for smaller buyers to swallow,

16

and certainly to bid full value on, and compete with

17

the larger chains.

18

So I think structurally, those impediments

19

should be removed and that should increase the ability

20

of smaller buyers to play a more active role.

21

MR. MacAVOY: I'll respond to a couple of these

22

things, including what you were saying and what Joe

23

said on Mary's question about whether we need FTC rules

24

on getting everybody and insuring that everybody is

25

involved in the bidding or whether we need some sort of

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1

staff supervision in the bidding process.

2

I think the answer to both those questions is

3

no.

I do agree with the points that Joe has just made

4

and the City Bar made in their comments.

5

lot of that problem could be dealt with by having some

6

relaxation in the up front buyer and in the single

7

buyer requirement.

8

merger parties in the direction of locking in on a sure

9

thing up front buyer very early.

10

That is, a

Those two things tend to push

If you relaxed a little bit on those things,

11

maybe there wouldn't be such an early lock in.

12

another aspect of this and this may sound like it

13

contradicts the point I just made, as a best practice

14

for merging parties I do think it's a good idea to get

15

thinking about and talking to prospective divestiture

16

buyers very early in the process and to get involved in

17

talking to a lot of different people, or at least,

18

several different people.

19

But

I have been in this situation where you dance

20

with the prospective divestiture buyer, for months, and

21

months, and months, then oops, it falls apart.

22

then -- now you're closer to the drop dead date on the

23

deal, and you're holding a gun to your own head at that

24

point.

25

And

So I think that the parties’ self interest will

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1

push them in the direction that Ron here has talked

2

about, which is getting backup, plan B, and plan C, and

3

plan D.

4

to and getting bids from.

5

At least have other people that you're talking

If you get tunnel vision and get locked in on a

6

favorite buyer up front, you could be very unhappy if

7

that falls apart for whatever reason or if the staff

8

looks at this person you have brought them and said,

9

this just doesn't do it, their financing is a mess or

10

it falls through or whatever, or maybe it could be the

11

buyer you have locked in, gets buyer's remorse after

12

they have kicked the tires and it backs up for whatever

13

reason.

That happens too.

14

I would like to go back just a little bit to

15

the third party rights question that came up because

16

there are a lot of issues.

17

hope you talk about something other than supermarkets.

18

In the retail context, the issue of logical consents of

19

course, can be a real problem.

20

anything to do with the competitive merits of the

21

divestiture.

22

landlords who by withholding a lease assignment, can

23

hold up a multi-billion dollar transaction.

24

you do?

25

As I was walking in, I said I

It doesn't usually have

Yet here you can have one or two

What do

Well, in my experience we either drop a lot of

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1

money on them or say we're going to go ahead anyway and

2

do this.

3

saying that to the landlord.

We're going to come -- come sue us. You're

4

Neither of those are very palatable things to

5

have to say.

What is the solution?

I think maybe one

6

solution, because I do understand that the staff

7

doesn't want to get involved in refereeing and having

8

to negotiate a party through its problems with the

9

landlord.

10

package of divested assets, at least the landlords

11

would realize, well, I don't have a five hundred pound

12

club, maybe a fifty pound club.

13

is holding up this entire transaction.

If there were some flexibility on the

This store is not what

14

If the parties had some ability you know, all

15

right it is not -- it's either this store or the one

16

down the street, because there is lot of times the

17

users in retail things turn on these close proximate

18

store pairings that would perhaps take away from the

19

landlord leverage and get rid of some of the these

20

extortionate tactics.

21

think that flexibility might ease some of these third

22

party problems a little bit.

23

I think that is a thought.

I

I guess the final thing I'll say on this

24

subject, is if you have not had a chance to see the

25

study that the general accounting office wrote recently

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1

on retail divestitures, it's a hundred fifty pages,

2

it's quite a lot, you should take a look at it.

3

I don't certainly agree with everything that is

4

in there.

5

this with a perception that the staff picks winners and

6

losers in these divestiture situations.

7

certainly not consistent with my experience.

8

Nevertheless, it's a very complete overview.

9

agree with the GAO point that now we have had five or

10

six, seven years of experience with a lot of these

11

preferences we'll call them, there are a lot of orders

12

now under our belt.

13

I think to some extent GAO has come out of

And that is

And I do

Perhaps it's time to look at the orders post

14

1996 in retail and see, have all these preferences

15

actually made a difference or are there still problems.

16

And maybe these preferences weren't the answer after

17

all.

Thanks.

18

MR. BLOCH:

One point I agree with Chris, that

19

the single buyer would be a help to changing the

20

process.

21

There has -- it has got to be coupled with total

22

abandonment of the policy against allowing incumbents

23

in the market to increase their market shares if they

24

buy some of the stores to be divested. Without that,

25

the selling to one buyer doesn't do the job.

But that really doesn't do much by itself.

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1
2

MR. ROONEY:

Now we'll hear from Mike Byowitz

from Wachtell, Lipton.

3

MR. BYOWITZ: Thank you Bill.

It's nice to

4

see so many friends and so many people I have

5

negotiated consent decrees with over the years both

6

Chris MacAvoy, Ron Bloch, when he was with the FTC,

7

Chris Perez, Phil Broyles

8

and Dan.

9

In any event, in preparing to say something

10

today, just in case that happened, and I was not the

11

scheduled speaker for my firm, so bear with me on

12

that.

13

I read over the answers to questions that the

14

FTC was kind enough to put out with regard to

15

divestitures.

16

reactions to it.

17

it and I think everybody is trying to do the best

18

possible job.

19

interests diverge from the merging party's interest to

20

some degree and appropriately so.

21

I had in reading it is the same concern that I have had

22

with regard to second requests.

23

And I wanted to give some overall
The fundamental concern I have with

And I understand that the agency's

But the concern that

Since Bill Rooney and I started working on

24

that process, when in a prior administration we started

25

looking at the second request process and that is in my

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1

judgment, an insufficient regard for the costs of what

2

is going on.

3

mission and I understand that the agency wants to

4

achieve perfection in its divestitures.

5

I understand that the agency has a

And I understand that when a divestiture does

6

not work out, it is a black mark for everybody in

7

involved, including the agency.

8

to avoid.

9

So that is something

But it says over and over again, that if you

10

want to deviate from the preferences, then you have got

11

to show something or another by clear and convincing

12

evidence.

13

case.

14

regard to a remedy.

Now, that is not the standard in a Section 7

And I don't think it should be the standard with

15

Secondly, I think that it is extremely

16

important to view your settlements in context.

17

context that it has to be viewed in is not just what

18

happens in the narrow market that you have identified a

19

competitive concern.

And the

20

We all do this as antitrust lawyers.

21

get so focused on the competitive overlap we forget

22

it's a ten million dollar line of commerce, a deal in

23

which parties are making -- parties that collectively

24

have billions of dollars of sales, and are doing the

25

merger in order to achieve hundreds of millions of

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41

1

dollars in synergies.

I'm not saying you should accept

2

that or trade it off.

But you need to take it into

3

context.

4

The solution in a deal where the competitive

5

problem is a hundred percent or ninety percent of the

6

assets, you're weighing this way probably will be

7

different than one which represents one-half of one

8

percent of the assets.

9

in mind, perhaps more than you do, the strength of your

10

case.

11

City Bar's submission, that these are settlement.

No

12

one is admitting that the deals violate the laws.

Some

13

of these settlements are in cases where it is very

14

clear that there is likely to be a violation.

15

other of these cases are ones that are much more

16

arguable.

17

I think also you need to keep

Not everyone -- I think the point is made in the

And

And it's appropriate in my judgment as a matter

18

of policy to say, I'll take a little less than

19

perfection in a deal where my case is a little less

20

than perfection.

21

negotiated a lot of consent decrees with the FTC over

22

the years.

23

fifteen or more.

24

eras, including -- and there have been significant

25

improvements in the process.

I also would say, and I have

I was trying to count up.

It's at least

I lost count, through many different

I remember not so long

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1

ago.

2

But it's ten or twelve years ago, when you

3

couldn't even start looking for a buyer, where you

4

couldn't bring the buyer to the Commission, until the

5

order had been finally accepted.

6

caused by the process.

7

along much more rapidly is a significant improvement

8

for which the Commission deserves a lot of credit.

9

So, the delay was

The ability to move the process

But I think that you need to keep in mind that

10

not everybody is like everybody else.

11

credit for being a good citizen.

12

relaxed a little bit if you had dealt with, and I don't

13

mean the lawyers involved, I mean the client.

14

lawyer is just representing somebody.

15

the people.

16

You used to get

The presumptions got

The

The clients are

But if somebody has complied with three consent

17

decrees in the past in an exemplary manner, query

18

whether you need an up front buyer.

19

credit for that?

20

Don't you get

My experience in recent years and I don't mean

21

this year, but, in the latter part of the last

22

administration for example was you didn't get any

23

credit for that at all.

24

something you might want to re-think.

25

else it creates incentives to comply with consent

And I would say that that is

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1

decrees.

2

I think that another thing in context that is

3

very important to keep in mind, is that not every fix

4

is going to be the same or needs to reach the same

5

standard, given the fact that not every competitor is

6

the same.

7

There are deals where the one of the two

8

parties' businesses, you know, I don't want to be

9

pejorative, is something of a dog.

10

very well.

11

rest assured you're going to hear all about that, and

12

all about the concerns that the compliance folks have

13

about the ability to divest it.

14

collapsed in the analysis first of all in the merger

15

because to be very honest with you, namely firms and

16

failing firms, come arguments that are things that as a

17

lawyer one should avoid making unless you have got a

18

have strong argument about it, because all you're going

19

to do is hear about it when it doesn't help you, not

20

when it helps you.

It is not doing

And if it isn't doing very well, you can

And that needs to be

And that is a concern.

21

In other words, it may well be that there is a

22

problem with selling some assets at the end of the day.

23

But if it is really a problem, it is not because the

24

prospects of this business are not reasonably good.

25

Who in the world would buy them and under those

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1

circumstances, how likely is it that the elimination of

2

that firm as a separate competitor is really going to

3

cause a problem.

4

I would lastly urge that I know there has been

5

some study done and there has been some questioning of

6

some assumptions in the GAO study that Chris referred

7

to.

8

effort is, and as important as it is, and as important

9

a piece of work.

10

it.

11

divestitures was, it only considered half the

12

issue.

13

What I would say, is that as welcome as this

And I don't necessarily agree with

But as important a piece of work, the FTC study on

There is another antitrust enforcement agency

14

in the United States as you are aware of.

15

the provisions that you're talking about are not

16

employed regularly there.

17

see whether FTC divestitures are notably more

18

successful?

19

success one might want to use.

20

study to see whether they are markedly more successful

21

than Antitrust Division settlements.

22

And many of

Has anybody done a study to

And we can discuss what measures of
But has anybody done a

My guess is you won't see much of a difference.

23

And if you do, it's purely a guess.

I have no basis

24

for this, that the DOJ settlements do at least as well.

25

And there are other things I guess I could say, but I

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1

won't in the interest of brevity.

Thank you.

2

MR. ROONEY: Thank you, Mike.

3

MS. COLEMAN: We can talk now or think about

4

as they are bringing comments, Mike had brought up a

5

good point that Dan and I thought about.

6

up this point on the GAO studies, looking at past

7

measures of suggestions as used in the FTC study.

8

the GAO study seems to be something we have looked at.

9

Chris brought

But

To ask the question we have been working on

10

studies, looking at past divestitures and gauging

11

success, what measures would we be looking at to gauge

12

success in divestitures and in doing such a study?

13

MR. ROONEY: Let us continue with the prepared

14

comments.

15

have a round table discussion.

16

next.

17

Then if we have time at the end, we will
Albert Foer to speak

MR. FOER: I'm Burt Foer, from the American

18

Antitrust Institute.

Most commentary that we hear

19

naturally comes from representatives of buyers and

20

sellers.

21

compliment you for conducting workshops of this sort

22

which are much more labor intensive than appear

23

sometimes.

24

and into the perceptions.

25

When push comes to shove, at the end of the day,

And that is truly important.

And I

It's truly important to get into the facts
And you're doing a good job.

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1

however, the purpose of the remedy is not to facilitate

2

a private transaction, but to assure the public too,

3

competition is not going to be diminished.

4

is the standard the FTC applies.

5

absolutely the right standard.

I know that

And I think it's

6

Let me very briefly call your attention to the

7

article that I submitted called Toward Guidelines For

8

Merger Remedies.

9

What the article did was to try to recognize that

10

Hart-Scott-Rodino changed everything, that it really

11

moved merger antitrust from a regimen of post hoc

12

adjudication to ad hoc regulation and pre hoc

13

negotiation.

That is in 52 Case Western Reserve.

14

And what we said was the time has come to

15

develop a more structured and more transparent approach

16

to this, a normal evolution in administrative type of

17

law.

18

would channel administrative discretion and as part of

19

that, we urged workshops of this sort to think about

20

these problems.

21

especially pleased to see this going on.

22

approach, we recommended presumptions that would apply

23

to all situations.

24

were not built into the remedy, the staff or the

25

Commission would have to explain why not.

So we suggested guidelines for this process that

So, at least to that extent, we're
In our

And then when those presumptions

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1

It doesn't mean that there would be a great

2

burden.

It just means there would be certain

3

established expectations that were always open to

4

deviation with explanation.

5

alternative optional course for giving early

6

consideration to remedy proposals when the parties

7

recognize that they are in a negotiating mode.

8

was based in part on the European approach, which tries

9

to get a lot of information up front and undertakings

10

up front, with the idea that there is a very good

11

chance that there really is an antitrust issue.

12

sides recognize it.

13

on it.

14

going to get into that anymore other than to say that

15

the challenge is to provide incentives to both parties

16

to negotiate this thing rather than to play the

17

litigation game.

We also proposed an

This

Both

And they are going to have to work

Since that is not really the topic today I'm not

18

In other words, recognize you're in a

19

negotiating mode, if necessary shift to the litigating

20

mode later on.

21

only way to go about improving merger remedies.

22

really do congratulate the staff on the frequently

23

asked questions and answers.

24

marvelous way to set out your thinking in a non binding

25

but, nonetheless, highly educational way, and hope that

But guidelines are far from being the
I

I think that is a

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1

that technique will be used more frequently.

2

Workshops like this are important.

3

reports like the one that was just referred to are

4

terribly important.

5

that an additional report be done to bring things up to

6

date.

7

important both to include DOJ, get some of this

8

information that does not exist, or at least I'm not

9

aware of any studies.

10

overall problem of not going back and looking at what

11

has been done in the past and carefully evaluating it.

12

We need to put more resources into that generally.

13

think also, the FTC can do things that -- I don't want

14

-- I wanted to say one other thing.

15

And staff

And I agree with the GAO proposal

And when you do that, I think it's going to be

This is symptomatic of an

I

The next time you do a report I think we need a

16

more robust definition of a what a successful

17

divestiture really is.

18

from methodology problems.

19

to getting fully convincing results.

20

Commission can do would be for example to explain their

21

decisions very carefully.

22

That is difficult I understand
But I think it's essential
Other things the

As you probably know, we opposed the position

23

the Commission ended up with in the cruise mergers

24

recently.

25

thoughtful explanation of why the case was not brought.

But, they issued a very detailed and

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1

And agree or disagree with the outcome, I think

2

we have to give great praise to that development in the

3

process and to encourage it much more.

4

very good example of explaining carefully, why a

5

decision was made not to go ahead.

We now have a

6

Generally speaking, we do need more

7

explanations of why certain remedies took the shape

8

that they did, when there is a remedy.

9

need an opportunity for public comment as would occur

10

under the Tuney Act.

11

its statement, public should have a chance to comment

12

and there should be as under the Tuney Act, some sort

13

of a response to the comments.

14

And we probably

When the Commission does issue

I think this also keeps the process moving

15

forward in helping to educate people on where things

16

stand.

17

priority in antitrust.

18

is the Office of Compliance, I have always felt that

19

that was a bad name.

20

Dan.

21

remedy experts and that remedies should play a role

22

from the beginning as was discussed a little bit

23

earlier.

24

movement much in that direction.

25

Traditionally remedies have really had a low
And the fact that Dan's office

So I want you to rename yourself

It seems to me you guys should be considered the

And what we have seen in recent years is

I think that the FTC should be commended for

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1

giving its remedy experts a larger role and more of an

2

up front role in the development of cases.

3

It is not enough just to make sure that each jot

4

and tittle of a compliance agreement is complied with.

5

I think the FTC has done a better job than the Justice

6

Department.

7

remedies have been more complete.

8

tools such as up front buyers, clean sweep and

9

trustees, are all things that are what I consider

10

favorable.

They have been more innovative.

Their

Using some of these

11

As I suggested earlier, I think that facts are

12

the key, not ideology, not formulas for what is to be

13

done.

14

tools, fueling the creative is very much called for.

15

think this is good.

16

on a sliding scale approach, the greater the

17

uncertainty of divestiture, the greater the risk.

18

competition is going to be lost.

19

required and generally is required to get the merger

20

through.

The idea of a diversity of tools, of creative
I

And I tend to say the FTC working

The

Then more has to be

21

So, we're not talking ideology.

We're talking

22

industry by industry differences, case by case

23

differences, and keeping an eye on the ultimate ball of

24

maintaining the level of competition that was there

25

before the merger.

I do think that up front buyers are

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1

a particularly important tool.

I think that was made

2

clear through the staff study.

And it does seem to me

3

that there has been a good deal of flexibility. Clearly

4

flexibility is needed.

5

valuable tool that should be encouraged rather than

6

discouraged.

But clearly also this is a very

7

Finally, on the question of the small

8

businesses, I think I'm in agreement with what I have

9

been hearing, that small businesses, medium size

10

businesses, local businesses, do need an opportunity to

11

step up to the plate.

12

is keeping the market competitive, it is not

13

protectionistic, then they should not be given any kind

14

of an automatic edge simply because they are small.

15

So, again, you're going to have to look at it industry

16

by industry.

17

important point when he says, as you look at mergers in

18

industries where there is a high degree of monopsony,

19

that that needs to be part of the analysis.

20

that goes through and eliminates direct overlaps but

21

increases the buying power of a party, leads us to

22

problems that I think are just beginning to come into

23

some sort of focus.

24

in antitrust.

25

there.

But since the name of the game

And I think that Ron makes an exceedingly

A merger

We have done very little with that

There is a case here and there, a book out

But the way the world has changed, we're seeing

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1

more and more issues of buyer power and it seems

2

although we need to do a lot of work to confirm whether

3

this is true, that at least in some industries, prior

4

buyer power can be exercised with a much smaller

5

portion of the market than on the seller side.

6

And so I think inevitably that has to become a

7

more important part of the way we think about the

8

remedy process.

9

to be here today.

10

So I thank you all for the opportunity

MR. ROONEY: Although we're coming to the end of

11

our scheduled time, we actually have three additional

12

speakers who have assisted us by Gary Kubek and has

13

Chris --

14

MR. MACAVOY: I'm done.

15

MR. ROONEY: Why don't we hear from Gary and

16

Fiona.

Is that okay?

17

MR. KUBEK: Gary Kubek from Deveoise and

18

Plimpton. I'm going to address several issues, some of

19

which have already been covered by the City Bar

20

Committee's report.

21

try to move through those much more lightly than I

22

might otherwise.

23

And so because of the hour, I will

Obviously, starting point we recognized as

24

private practitioners is the Commission's goal in terms

25

of remedies and divestitures, is to get the best result

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1

for consumers.

2

Nevertheless, I think it's important that all

3

of the parties including the Commission, recognize as

4

the City Bar Committee, that divestitures like all

5

acquisitions do involve a substantial amount of

6

uncertainty.

7

fail. And the fact that a divestiture in fact, doesn't

8

work out, that the buyer ends up not being successful

9

running the business, doesn't necessarily mean that the

10

wrong decision was made in the first instance.

11

Acquisitions are risky.

Some of them

It may be for example, that in fact, the

12

marketplace turned out to be more competitive,

13

post-transaction than either the Commission or maybe

14

the buyer, the divestiture buyer may have thought.

15

I'm struck by Chris -- this goes back a couple of

16

years, and reading the Commission's study on

17

divestitures which covered a number of excellent

18

points, but also did seem to at least to a private

19

practitioner, to have perhaps an unrealistic perception

20

of how the due diligence process works in other

21

transactions.

22

And

And as someone whose practice does encompass

23

some of these issues and occasionally dealing with

24

parties doing transactions that do not have antitrust

25

issues, buyers always complain they don't have enough

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1

access to information.

That is why representing the

2

seller or buyer, there is an inadequacy of perfect

3

knowledge.

4

necessarily what has contributed in all these cases to

5

a divestiture not having been successful.

And it is not clear that that is

6

Having said that, it's certainly appropriate

7

that the Commission and the parties do whatever they

8

can, and the Commission ensure that the parties do

9

whatever they can to make sure the would be buyers have

10

appropriate access to information; but that in doing

11

so, that you understand the commercial realities and

12

the limitations of that process, the unpredictability

13

of what is going to go on.

14

continuing to carry on a business there may be

15

limitations to access of information.

16

The fact that the seller is

Another point related to that is of course just

17

as the efficacy of the divestiture is uncertain.

18

think it was alluded to, some cases it may be more

19

clear than others, that in fact it will be a

20

competitive harm.

21

I

But in each case you're making predictions with

22

something less than perfect information and where

23

people are making guesses about how things are going to

24

work, both in terms of the harm to competition and the

25

remedy.

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1

One final point that I would like to get into,

2

is it would be interesting to see and I'm not sure how

3

would you know one could do this, whether there is any

4

relationship between the speed with which a divestiture

5

has been accomplished and the success of those

6

divestitures ultimately.

7

mentioned a couple of points during the course of the

8

day where one could see that there might in fact be

9

problems the longer that transactions linger.

People have alluded to and

10

You have the issues of unavoidable harm to the

11

divested business, lack of direction, employee morale,

12

employees leaving the company.

13

It has been my experience, those are things

14

that cannot be easily remedied by even a hold separate

15

order because they are problems that affect not just

16

divestiture sales, but ordinary sales.

17

lingers, the worse that problem can become.

18

The longer it

Now, so this suggests that perhaps expedite the

19

process of approving a divestiture to minimize those

20

risks.

21

that, there is a trade off.

22

an up front buyer, it may reduce the opportunity for

23

another buyer to come in and participate in the

24

process.

25

for us in the private world to say this than it is for

And at the same time as people have suggested
If you move quickly, have

What this suggests and perhaps it is easier

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1

all of you to implement this, is the place to try it

2

and see what we can do to try to shorten the process in

3

terms of the Commission's own review and approval

4

process.

5

And I think in connection with that, it can be

6

very valuable and usually is very valuable to have the

7

staff that has conducted merger analysis, intimately

8

involved in the divestiture review process.

9

People sometimes may accuse a compliance group

10

of being, perhaps, too rigid in the way they approach

11

transactions.

12

misguided criticism, but rather they have not been

13

living with the case or the market for however many

14

months the parties and the merger staff have been.

15

they are suffering from greater uncertainty and lack of

16

information.

I tend to think that might be a

And

17

So to the extent the merger group can be

18

integrated with the compliance group in evaluating what

19

is appropriate and necessary in a particular case and

20

the real and theoretical cases, that is something that

21

might be, I believe, able to be expedited also.

22

MR. ROONEY: Thank you.

23

MS. SCHAEFFER: Fiona Schaeffer from Weil,

24

Gotchel.

I think as some of you have commented on the

25

more sexy issues in the merger remedy process, I would

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1

like to go a little more down home and concentrate on

2

some of the process issues in obtaining a final consent

3

decree.

4

touched on is transparency.

5

commend the FTC. And I think the cruise lines decision

6

is a further positive evolution of that.

I think the first issue which others have
And again, like others I

7

I guess there is a mutual interest in

8

transparency as Molly Boast said in a recent speech,

9

"The earlier we inform merging parties about our likely

10

concerns, the earlier they can consider proposing an

11

appropriate remedy.”

12

The staff have been quite forthcoming in

13

identifying relatively early in the process of areas

14

their areas for concern and what further facts and

15

information may be helpful in addressing those

16

concerns.

17

about the issues and possible remedies often has

18

facilitated the negotiations of a core settlement

19

package in a relatively quick time frame.

20

the process of formalizing the settlement package in a

21

consent decree may take much longer than the core

22

settlement negotiations, and in fact, involve much more

23

protracted negotiations itself.

24
25

This kind of willingness to be up front

Ironically,

So I think it would be useful to extend the
principals of transparency in substantive merger review

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1

into the next stage of the process, for example, the

2

ancillary provision that accompanies the core remedy

3

and the process of vetting and approving a buyer in a

4

divestiture situation, as well as the overall

5

settlement package.

6

This is an area where there is a real asymmetry

7

of information.

8

available to the parties whereas the agency has the

9

insider’s perspective on prior negotiations and

10

settlements that may materially impact the negotiations

11

at hand.

12

There is a limited public record

I recognize as the FTC emphasized in the recent

13

GAO study, that it doesn't use the one size fits all

14

approach and its decision to use particular divestiture

15

solutions including up front buyer process is based

16

other particular facts of the case, and also on

17

proprietary company, such as trade secrets, information

18

that it must protect.

19

So rather than develop formal guidelines and

20

policies, upon which the staff may choose an

21

appropriate remedy, it prefers to draw upon past

22

experiences and advice of experienced senior staff.

23

I agree with the FTC that we don't want to make

24

this process too rigid.

But I think the reality is

25

there is a body of practice and guidelines that the FTC

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1

is using and those are constantly changing.

2

there may be a middle ground in terms of and guidelines

3

and sometimes ad hoc information and limited guidance

4

that parties have at their disposal when they

5

contemplate settlement discussions.

6

So I think

I think this workshop is a greater part of that

7

process.

It's an opportunity for all of us to discuss

8

what the issues are and our concerns.

9

thought that occurred to me along the transparency and

10

case management lines is how one manages the settlement

11

process towards a final decree.

I guess another

12

While most of us are familiar with the formal

13

systems of obtaining a final consent decree, there can

14

be sometimes unexpected turns in the process based on

15

unwritten agency practice or policies.

16

And as the FTC has recognized there may be

17

unique features of a particular case that complicate

18

the process of finalizing the decree.

19

had was once a core settlement package has been

20

reached with the FTC staff it might be useful for

21

example to schedule a settlement conference between the

22

parties, the FTC staff and the compliance people who

23

will be reviewing the settlement package.

24

objectives of such a process might include one or more

25

of the following.

So one thought I

The

To brief the compliance people who

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are likely to have very limited involvement up to that

2

point on the issues raised by the merger and the

3

proposed settlement package; to map out the steps

4

towards approval.

5

whom, and when, and perhaps to draw up a tentative

6

timeline towards Commission approval taking into

7

account the FTC's practice, the parties' critical

8

timeline, timetable of the transaction, including drop

9

dead dates, the likely timing of finding a purchaser,

10

and the possible interplay with other agencies'

11

reviews.

12

specific issues or potential obstacles to approval,

13

such as the need to obtain and the timing of third

14

party consents.

15

What is involved and required from

This process might include anticipating

I note that the FTC has adopted a similar

16

procedure in the second request conference.

17

suggesting that any such settlement conference would be

18

so formal.

19

binding, given all the variables involved, but would

20

encourage the parties and the FTC to develop a road

21

map and timetable for the approval process we may well

22

improve the speed and efficiency of implementing FTC

23

settlements to the benefit of all.

24
25

I'm not

Certainly the timetable would not be

I guess a couple of final comments on some of
the more substantial issues.

Others have said a lot

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1

about the merits of the up front buyer approach.

The

2

one comment I would make, I think is there is an

3

interplay between the up front buyer provision and

4

problems that we see with third parties. In essence the

5

up front buyer process often does not the process of

6

commercial bargaining which as others have pointed out

7

often has little to do with competition issues and

8

everything to do with the leverage that a couple of

9

landlords make in a situation.

10

So I think in any decision, to assess whether

11

or not an up front buyer is necessary, those kind of

12

third party issues should perhaps play more of a role

13

in that determination.

14

Finally, on the interplay of the crown jewel

15

provision and an up front buyer requirement, I guess my

16

position is there should usually be no need for the FTC

17

to insist on a crown jewel provision where an up front

18

buyer is required given the state of rationale of the

19

crown jewel provision, is to assure parties effectuate

20

relief in a timely and appropriate fashion.

21

That kind of concern does not usually occur in

22

an up front buyer situation and the implementation of

23

such provision to do so, could be very punitive in that

24

circumstance.

25

the FTC to embark on further study as we have started

Finally, I would just like to encourage

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1

here, of the effectiveness of the merger remedies that

2

it has implemented.

3

useful in that process to involve the Bar economists

4

and industry, who may provide has a broader perspective

5

on the efficacy of the remedy and perhaps in doing so,

6

a broader acceptance in the findings and conclusions.

7

I would like to thank you all for the

8

opportunity to give those comments today.

9
10

And I would say that it would be

MR. ROONEY: Thank you to the patience of FTC
personnel for listening to our comments.

11

May I suggest in closing we offer the panel an

12

opportunity to offer a brief comment across the board,

13

having come to New York to listen to us so patiently.

14

Phill, would you have a thought to offer us?

15

MR. BROYLES: First of all, I want to express my

16

appreciation, for the thought and the time you gave to

17

preparing the comments that we have heard this

18

afternoon.

19

I was struck by particularly the desire for

20

more transparency, which I think benefits us as much as

21

it benefits you.

22

have heard expressed here are things that we have

23

contemplated internally and particularly as Chris

24

alluded to, the problems with third parties to a

25

consent.

I think a lot of the things that I

I know that I have had a supermarket

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1

divestiture where a landlord essentially held up a

2

company for a large exorbitant payment.

3

something we desire to facilitate or foster.

4

have to recognize from a staff standpoint, we're

5

approaching this as if -- with the back drop against an

6

acquisition we have determined to be illegal.

7

It's not
But you

And our primary incentive is to fix that

8

illegality.

9

But that is the mind set with which we go into this.

10

It is not to enrich or penalize anybody.

And, I don't think we have any set policies or

11

preferences.

But the idea is to make sure when we

12

negotiate a fix to a problem, we have identified, that

13

the Commission gets the benefit of the bargain that we

14

have negotiated.

15

So, these things that we talked about, policies

16

or preferences are merely tools that I see us using to

17

achieve the main policy.

18

anti-competitive problems that we have identified.

19

That is not to say that we always have the

And that is to remedy the

20

right -- that is not to say that we always do it in the

21

least costly way to the parties.

22

And I encourage you to work with us to try to

23

identify those areas in which we can do something less

24

drastic, for lack of a better word, that achieves the

25

Commission's primary goal.

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MR. SALTZMAN: I also found the comments to be

2

very, very helpful and enlightening.

3

points I wanted to address.

4

people suggesting additional effort be made to assess

5

the effectiveness of the divestitures.

6

just encourage people if you have specific suggestions

7

or ideas of how to go about doing that, at least I

8

would be interested in hearing them.

9

question.

10

I had a couple of

One is the number of

And I would

Then I have a

Let's say, we do an analysis and determine that

11

it appears that some types of divestitures are more

12

successful than others and particular types of firms

13

seem to be successful, more so than another type of

14

firm, I don't know this to be the case, let's say,

15

smaller firms have -- let me put it this way.

16

say, there have been divestitures to large firms.

17

they have been successful, then return to the question,

18

should the Commission take actions in some way to alter

19

that outcome?

20

maintain or restore competition and if a particular

21

process seems to do that, and if it turns out that some

22

party is disadvantaged, how do we do that?

23

Let's
And

In other words if the objective is to

I will give you a hypothetical. I'm an

24

economist.

Let's say, the parties wanted to do the

25

deal quickly and in order to do the deal quickly it

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1

turned out that they sold assets mostly to smaller

2

firms because small firms are nibbling quickly and

3

larger firms are bureaucratic and they were not able to

4

get in and be purchasers.

5

the arrangements so that the larger firm isn't

6

disadvantaged if it turned out the small divestitures

7

were successful?

8

One final comment.

Should we then try to alter

I think it's a good idea

9

and there is certainly an effort to do this, on the

10

staff's part to identify potential problems early in

11

the going so that remedies can be discussed as early as

12

possible.

13

I think a potential problem that the staff

14

encounters is that very early in the investigation, you

15

don't exactly know what the problem is, because we're

16

still trying to assess what the markets are and develop

17

a theory.

18

So, in a way, it may be premature to jump at

19

something before identifying what the problem is.

20

the parties perhaps can help in that process, by

21

providing the kind of information to the staff to help

22

it do its job as soon as possible.

23

MR. ROONEY: Mary?

24

MS. COLEMAN: I don't have too much further

25

to say, just fill in Harold's comments.

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And

I think I was

66

1

happy to have Fiona bring up some issues of process; we

2

had not talked about that so much I think.

3

sometimes the process works well.

4

unfortunately, the process drags out a lot longer than

5

any commission or parties would like it to.

6

And

And sometimes

And I think any thoughts that people have, I

7

would encourage on ways to streamline the process.

And

8

I think where we can do things at the Commission to

9

make the process move more smoothly, as well as, you

10

know obviously it's both sides to the negotiations or

11

can be reasons why it drags on so much longer.

12

Also thoughts of ways of ensuring the parties

13

not being the reasons why the process is also dragging

14

on so long, the thought that is people have along those

15

lines.

16

And I encourage people to put together

17

submissions or let us know what thoughts you have on

18

that issue.

19

MR. ROONEY:

20

MS. ANTHONY: I think what my colleagues have

21

all said sounds obviously very reasonable.

22

only thing that I would add here, just in terms of some

23

of the comment, is that from our perspective I think or

24

speaking for myself, is that the hippocratic oath

25

manager, do no harm, I think when we are involved in

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And the

67

1

negotiating dealing with remedies in the merger

2

context, we're very mindful of the enormous power that

3

we're vested with, either informally or formally with

4

the law.

5

And I think as we approach these things we

6

really do try to refrain from what I'll call market

7

engineering or market restructuring, because that

8

really is not our role.

9

comments mentioned today, re-enforce that, that we

10

we're not trying to restructure or re-engineer.

And I think that all of the

11

We're trying to ensure that any competition

12

that would be significant competition that would be

13

displaced would be replaced.

14

would much prefer that the market do, and that our

15

fingerprints in that sense are not on it, because that

16

is not what we're best equipped to do.

How that is done, we

17

One last comment in terms of Ron's issue with

18

respect to more information out there and the bidding

19

process and the auctioning process. And I couldn't

20

agree with you more.

21

Competition is always enhanced with more

22

information that we have.

The problem is it's not the

23

role of the FTC staff to ensure in that auctioning

24

process, one hundred percent information is out there.

25

That is the role, we hope the market will play with

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1

some suggestions that were made.

2

moving in that direction.

Obviously we're

3

MR. ROONEY: Chris Perez?

4

MS. PEREZ: My only comment is a practical one.

5

What I find clients want to have is this process move

6

quickly and smoothly and no surprises.

7

I can give to that is that this should be an open

8

process.

9

The only advice

We at staff should tell the lawyers, the

10

clients what our issues are, why we have those issues

11

and why it's important to fix that.

12

I think clients should tell us the information

13

that we need to resolve those issues.

We may need to

14

talk to people within their company.

We may need to

15

have to some creative solutions to some of these or we

16

may need to know more about how this process of

17

occurring, the remedy is being done with the client,

18

rather than okay it's done, here you go, this is how

19

you evaluate this.

20

I think when there is open dialogue, this moves

21

faster, quicker.

22

standpoint.

23

Problems are solved from an easier

And I would advise to do that.

So I would think it should be more of a

24

partnership in remedies.

And my last comment, I'm not

25

entirely sure that the private Bar knows this.

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But the

69

1

staff expends as much time working on the remedy as we

2

do on investigating the case.

3

We talk to industry participants.

4

We do depositions.

5

lightly.

6
7

We talk to customers.
We do interviews.

So this is not something we take

We do spend a lot of time on this.
And I just wanted to make sure everybody knew

that.

8

MR. ROONEY: Last word to Dan.

9

MR. DUCORE: Two quick observations.

Then to

10

thank everyone for their input.

I think what I'll take

11

away from this meeting, one of the most intriguing

12

areas was the idea of changing the process.

13

I don't know yet what I think of that.

14

think we should give a lot of thought on our side about

15

how we do some of the things we do.

16

implicates transparency.

17

who may feel like they are cut out of the process.

18

There may be limits as to how far we can go there.

19

It's an area we have not spent so much time on, as on the

20

nuts and bolts, like up front buyer.

21

But I

I think that

It implicates more parties

But the other point, and I get the sense that

22

we're not communicating this perspective.

So I want to

23

leave you with this thought and maybe the word can

24

spread.

25

while ago.

Bill Blumenthal wrote an article a little
And I generally agree with him on a lot of

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1

points, except where he accused us of engaging in

2

regulatory arrogance, in that we second guess the

3

potential buyers when they cut their deal. And we

4

second guess what the package is when it's put to us as

5

being a competitive fix to the problem we have

6

identified.

7

second guessing, I think we're not really getting our

8

message out.

9

And if we're perceived as being -- as

And the message I would want to get out is

10

we're trying to minimize, not just the risk, but we're

11

trying to minimize the assumptions we think we have to

12

make about a remedy, to decide whether it's workable, so

13

that the more a package or divestiture proposal varies

14

from what the competitive situation looked like before

15

the deal, the more it raises questions that we have to

16

answer. And the harder it is for us to do that, or it,

17

the more assumptions it calls on us to make.

18

And let me use a quick example.

I'm going

19

back to supermarkets because I think it raises these

20

kinds of -- these kinds of cases raise the issue most

21

acutely.

22

national chains but in a particular geographic market

23

they have a number of stores dispersed around the

24

community, supported by the vertical integration of a

25

parent firm.

You have a merger of two chains, regional or

And that's what you have competitively

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1
2

going in.
Presumably we want to preserve that

3

competition.

We think that is a good thing.

And the

4

loss of that is what leads us to conclude we have a law

5

violation.

So the question then is, what do we do to

6

get back?

If that was working before and the loss of

7

that is our concern, then it seems to me that you need

8

to make the fewest assumptions if the remedy is going

9

to restore the market to something that looks like that

10

after this.

11

When we start asking questions or if we start

12

considering options like, well we won't divest all of

13

one company’s stores, we'll divest a mix of stores, then

14

we have to start questioning the assumption, is that

15

mix of stores going to have the geographic dispersion

16

that it needs. Are they going to be viable stores

17

individually?

18

the dog stores.

The phrase is we don't want a package of

19

That may be an extreme statement.

20

to look at each property to answer the question:

21

that individual property going to be a viable

22

competitive contributor to the chain that is going to

23

be now made up and divested.

24
25

But we have
is

And that is a question we don't have to ask if
one whole side of the transaction is being divested.

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1

Similarly, if we entertain the proposal to take one

2

chain and split it in half and divest to two smaller

3

firms, we then have to ask the question:

4

can those two firms offer the kind of competition in

5

the market that one large firm did before.

6

may be better.

7

be.

8

that this is just as good as what we had before.

9

And the final point along those lines is

That is true.

They

But they may not

It's dangerous for us to make the assumption

10

allowing a divestiture to an incumbent.

Let me

11

underscore that there is not a policy against that.

12

And I'm not sure there is

13

a preference against divestitures to small

14

incumbents.

15

think in particular cases, is that the incumbent isn't

16

so small.

17

you may not be solving the problem.

18

it worse.

19

smaller company, eliminates that smaller company.

20

we have to then weigh the pros of somebody who already

21

knows this market a little bit getting in in a bigger

22

way against a loss of him as an independent now that he

23

is going to take over the position that another firm

24

had.

25

I think the problem we have found, I

And if you run the concentration numbers,
You may be making

But, be that as it may, the divestiture to a
So

I'm not saying these are things we reject out of

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1

hand.

2

entered that contain all this.

3

and offer that to us, we have to ask a lot more

4

questions than we had to ask before.

5

They are not.

There are consents that we have
Every time you do that

Number one, it slows, you know, the process.

6

But number two, it involves us in making those kinds of

7

assessments and making assumptions that frankly we

8

would prefer not to make.

9

the market.

10

deciding we had two firms before, now we think one big

11

one and two little ones would be better.

12

We want to stay away from that.

We don't want to re-engineer

We don't want to be in the position of

We get forced

13

into considering just those questions when the parties

14

come in and want to offer deals that look

15

post-divestiture, that are going to present a market

16

post-divestiture which is not what the market

17

pre-merger looked like.

18

And we worry about making a lot of assumptions.

19

that is when we frankly have to get a lot of answers to

20

a lot of questions.

21

That is when we get nervous.
And

If I could get people to understand we're not

22

eager to do that, we're eager not to do that.

23

we're asked to and the parties say, we will take the

24

time to let you do that, we will do that, albeit I

25

think we will do it reluctantly.

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1

MR. ROONEY: Thank you very much.

Thank the

2

audience.

3

the FTC personnel will stay around for a while.

4

you for your participation.

5

If you have individual comments, I'm sure

(Time noted: 1:45 P.M.)

6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
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Thank

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Aftc%3A424adf4cb6e17c96. Public record. Not legal advice.