FEDERAL TRADE COMMISSION

Agency decision

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I N D E X

WORKSHOP:

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Remedies Process

EXHIBITS:

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FEDERAL TRADE COMMISSION

In the Matter of:

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A WORKSHOP TO DISCUSS THE

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FEDERAL TRADE COMMISSION'S

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REMEDIES PROCESS.

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Tuesday, June 18, 2002

Room 332

Federal Trade Commission

6th & Pennsylvania Ave., NW

Washington, D.C. 20580

The above-entitled workshop came on for

comments, pursuant to notice, at 12:00 p.m.

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APPEARANCES:

ON BEHALF OF THE FEDERAL TRADE COMMISSION:

JOSEPH J. SIMONS, Director, Bureau of Competition

DANIEL P. DUCORE, Assistant Director Compliance

RICHARD LIEBESKIND, Assistant Director Mergers II

PHILLIP L. BROYLES, Assistant Director Mergers III

CHRISTINA R. PEREZ, Attorney

Federal Trade Commission

6th Street and Pennsylvania Avenue, N.W.

Washington, D.C. 20580-0000

(202) 326-3667

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P R O C E E D I N G S

MR. SIMONS:

everyone.

Good afternoon.

Good afternoon,

Thanks for coming.

This is part of a process that we've initiated

in terms of both the second request process and the

remedies process.

This initiates the remedies portion

of our initiative.

We've had several meetings already,

brown bags, and other types of meetings, to hear comment

and get some criticism and feedback on the second

request process, and I've got to tell you, when we

started this process, we were pretty fearful, actually,

because, you know, you've been in this business long

enough, you hear all the kinds of horrible things that

people have to say and the venting and everything and

the frustration kind of comes to the surface and

whatever, and we thought, gee, is this such a good idea.

This may turn out to be kind of, you know, a fist fight

as opposed to something constructive.

And what we had happen with the second request

program is really something pretty phenomenal.

The

amount of interest and participation has been really

tremendous, and I've just been incredibly impressed by

the thoughtfulness that folks have put into their

comments.

We've gotten a bunch of written submissions

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and they've been really just incredibly well thought out

and very helpful.

In terms of the remedies process, we've actually

already gotten some input in writing from folks, Chris

is in the room some place, submitted something really

quite thoughtful from the folks at FMI, and so we're

pretty -- we're also very kind of optimistic about how

this process is going to work out.

This is not an exercise, we hope, that will just

kind of be a lot of dialogue without any concrete

action, so we're really looking forward to making some

improvements to the process and the results.

And I guess with that introduction, let me turn

it over to the guys who really know what they're doing,

at least are doing.

MR. DUCORE:

Okay.

We're going to start with

just a brief overview of some ideas and hopefully sit

back and listen, but I'm Dan Ducore, as that indicates.

The real idea of this is to get a discussion

going about how we've been approaching merger remedies,

what you all think has been working, what you think

maybe hasn't been working, ideas you have about things

we should be doing and shouldn't be doing and arguments

in favor of that.

But I want to start by laying out, what we're

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going to do is lay out our -- talk about some of the

things we're doing specifically.

So, Rick is going to talk about how we decide

what should be in the package of assets that's going to

be divested, talking about divestiture.

Phil is going to talk about the kinds of

questions we ask and analysis we go through when we're

considering whether a proposed buyer is a good buyer.

Chris is going to talk about some issues about

third party rights and talk some about mergers in the

pharmaceuticals industry as sort of a context for that.

Then she'll talk some about the hot issue I suppose

which is up-front buyers and fix-it-first.

But I want to emphasize that this is really

just, you know, we call ourselves five minutes each, so

I am spending 30 seconds on a card here, to really just

get that out as the broad strokes of the discussion and

then hear from you guys.

One of the things we also want to hear about is

how we should go about testing the things we're doing to

see if they're working, if they're not working and

whether we're overdoing it in some areas and if we're

not doing enough in other areas, and suggestions on how

we should go and try to gauge that.

We have a reporter here who is taking down

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everything we say, so if you're going to speak, please

stand up and identify yourself for both the audience and

for the reporter.

But let me just sort of lay out, and I'll speak

for myself here, my view of what it is we're doing here,

and that is, you know, what's our goal.

it's important and it doesn't go without saying that we

only get into a consideration of remedies at the point

where we decide that it's a problem.

thing we're thinking about is can it be fixed, and if it

can't be fixed, then the deal needs to be prevented.

And I think

So that the first

I think it's a mistake to approach merger

remedies without having that overall view in mind,

because in the back of our mind is always going to be if

we can't work out a deal that we think solves the

problem we've identified, then we need to think about

going into court to stopping the deal.

our bottom line below which we can't go.

So, that means

What we're doing when we do all that is very

simple, I think, and that's that we're trying to reduce

and minimize the risk that the remedy won't work.

lot of things we've been doing over the last five, ten

years are done to address our perceived -- our

perception that these things are risky and we want to do

as much as we can, frankly, to shift that risk or that

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And a

cost from consumers onto the parties who are doing the

deal which, after all we've concluded is going to be

otherwise anticompetitive.

And we recognize that that imposes costs, we

think that is the proper balance to be struck, obviously

we want to hear from people out here and elsewhere

whether they agree with that, but, you know, I think

it's hard to argue with the premise that it's

unreasonable to expect the agencies to take remedies

that are loaded with risks, because if the risks come to

bear and the remedy doesn't work, then we've had an

anticompetitive deal that's gone on and we have no

solution to it.

That's just not an acceptable outcome.

Let me also lay out on the table what I came up

with this morning as three assumptions which I will

acknowledge, at least I make when I go through this

exercise.

an assumption, maybe, and that is that assets don't

compete, businesses compete with particular assets, and

a lot of what we do is addressing the question is what's

being divested really going to constitute a business or

allow someone to constitute a business that can compete

with the parties post divestiture.

The first one is that more of a belief than

The next assumption is that -- Joe mentioned

this in his speech last week, is that the buyers and the

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proposed buyers of the divested assets, their interests

don't comport and don't coincide precisely with

consumers' interests as viewed through the FTC's eyes.

So, there are three parties to the deal, there is the

parties to the merger who have their views and of what

they're can look for the divestiture, there's the buyer

of the assets who has its views of what it's looking for

in the divestiture, and it's us standing in the shoes on

behalf of consumers that probably have a somewhat

different view of what we're looking for than even the

buyers do.

And the third assumption is that buyers are

going to make a lot of assumptions about what they're

getting that don't necessarily bear out, and that it's

therefore our job to challenge the buyer, to question

the assumption that they're making and to be careful not

to come at a deal that they're going to buy divested

assets -- through which they're going to buy divested

assets on the assumption that this is just like any

other commercial transaction.

So, if the proposed remedies look iffy, we need

protection against the risks falling on consumers, and

those protections have been things like crown jewel

provisions, if the divestiture doesn't happen, hold

separates to preserve competition before the divestiture

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happens, and in cases where we're really not sure that

the package is saleable or that anybody is going to come

forward to make it work, up-front buyer.

So, our goal, and now I'm going to turn it over

to the other folks here, is quick and effective

divestitures, preservation of competition during that

time, and minimization of the risks on consumers.

can reduce those risks, I think we can negotiate

successful remedies, that's going to pose costs on the

parties that they may not have warned in previous

arrangements, but I guess the challenge I put out there

is that I don't know what the alternative is to that.

That should be acceptable to the agency.

If we

So, with that, let me turn it over to Rick.

MR. LIEBESKIND:

On the subject of the asset package, the goal is

Thanks, Dan.

easy to state.

position where it can compete in the business as

effectively or at least as effectively as the --

typically the acquired firm or, you know, one of the two

firms that is merging.

The goal is to put an acquirer in a

So, the goal is easy to state.

The important

point to remember is that it's not sufficient merely

that they don't go out of business in six months or a

year or two years but that they will be as much of a

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competitive constraint on the merged firm as one of the

merging firms was on the other.

The practicality of that involves, and to talk

about it in the context of a situation where we don't

have an up-front buyer, is have we identified the assets

that one of the merging firms uses to compete in its

business.

happen to be.

assets, factories, stores, plants, equipment, so forth.

Intangible assets, including both intellectual

And that would be whatever those assets

It could be some combination of tangible

property and people.

And not that tangible assets are

easy, because there's all sorts of issues come up, but I

just wanted to touch for two seconds on both the

intellectual property issues and the personnel issues.

More to invite discussion than to set forth anything on.

Intellectual property issues, these are among me

personally the most vexing we have in finding an asset

package, particularly in a non-up-front buyer situation.

To know not only what intellectual property the acquirer

would need, but in what form in terms of divestitures of

intellectual property versus licenses and versus what

kinds of -- and the issue comes up what kinds of rights

to exclude the merging parties or others from the use of

the intellectual property in question are all issues

that come up that I would be interested in hearing from

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people how they think we should be thinking about them.

I think that how we think about them in large

part depends on what our goal is, whether our goal is to

let somebody compete in the business or whether our goal

is to let somebody compete in innovation, or both, and

you might get different answers depending on what your

theory of competitive harm is.

On the personnel issue, the issue I want to

flag, simply just thinking about what I would say about

this, is whether legally we can force people to work

somewhere else or not, sometimes we can, sometimes we

can't.

simply a political issue that the FTC, in my view, my

own view, doesn't often want to be seen in the position

of forcing people to work in one place versus another.

So, we're more likely to be trying to incentivize people

to work in one place rather than another.

issues will come up in that regard, but that's something

that also may be the subject of some discussion.

We often have the -- an issue that I would call

And a lot of

MR. DUCORE:

Okay.

Phil?

MR. BROYLES:

Yeah, as with the asset package, I

believe the criteria that we apply is fairly easy to

state, but again, the devil is in the details, and

essentially what we're looking for, are buyers ready,

willing and able to opt -- first of all to acquire the

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assets in question, that is they can afford them, and

secondly to operate the assets in the manner in which

they were operated before -- before the merger.

Again, the operative goal being to preserve or

restore the competition that existed before the merger.

And so obviously when we look at buyers, one of the

things that we're going to be looking at are the

financial viability, that is do they have the money to

acquire the assets and to operate them if they're in the

business.

Number two, their expertise and/or experience,

and I use those separately because that -- they may have

expertise in related industries that give us comfort

that they can operate the assets in the industry that

they're in.

actual industry in different markets or experience in

this market, but we're going to be looking at their

ability to actually compete, and again, to form the same

kind of competitive constraint on the merging party as

it did before the merger.

And also they may have experience in the

In looking at these questions, a couple of

issues have come up repeatedly, and I think a couple of

misperceptions about what we do.

whether or not we have an absolute requirement for

out-of-market purchasers.

And the first is

Obviously one of the things

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that we look at when we look at a buyer is the extent to

which the -- that buyer itself can pose competitive

problems, which -- and clearly if that's a concern, it's

a concern that is most easily addressed with a buyer

that is not currently competing in the market at issue.

Having said that, there are also situations in

which a buyer that is in the market is a fringe player

in the market and that a divestiture of that player

would perhaps enhance competition instead of imposing

competitive constraint.

So, we will and we have divested to in-market

purchasers in a variety of matters over the past years,

the most recently being Valero/UDS

player, and in Nestle/Ralston and in some of the

supermarket cases, most notably the Jitney

Jungle/Delchamps.

out-of-market buyer, because that's the easiest way to

determine fairly quickly that the buyer itself is not

going to pose competitive harm itself.

where we divested a

And our preference would be for an

Another question is raised as to whether or not

we prefer, and this is the reason most pointedly in the

supermarket industry, whether we have a preference for

large chain purchasers of stores.

back, if you go back and look at what we have actually

done in that industry and in others, you'll see that

And again, if you go

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there's no real clear-cut pattern of preferring large

chains or smaller independent chains.

What we do is look at the assets in question,

the market in question, the nature of competition, and

then determine what are the criterion in the buyer that

we are going to look for that would best restore that

competition.

In some instances where the asset packages were

particularly large, that necessarily self selected a

large buyer to be able to afford and to operate, but

again, we have divested to large chains, we have

divested to independent operators, we have divested to,

in fact, wholesalers buying these stores in particular

markets.

So, our overriding goal is not to find a

particular buyer, but to find the buyer that based on

the facts of the situation that is before us is adequate

to preserve and restore the competition that we see

entering into the merger.

MR. DUCORE:

Okay, Chris, third party rights,

pharmaceuticals.

MS. PEREZ:

Well, I was going to start off sort

of giving an overview of how we've looked at the

pharmaceutical mergers in the past and talk a little bit

about third party rights as they apply to that.

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I think

overall what I am going to say not only has to do with

pharmaceuticals, deals with mergers as a whole, but as I

am going to talk about them now, it's in relation to

pharmaceuticals.

Because pharmaceutical mergers tend to be

complex processes, they're long, they tend to require or

almost always require buyers up front for four reasons.

One, they're not divestitures of ongoing businesses, the

acquirer can't just start producing the divested product

the next day.

So, that's the main reason.

The second reason is that for many of these

products, there aren't a lot of interested buyers.

know, pharmaceutical divestitures are not something that

a financial buyer can just pick up, and in many of these

cases, they're esoteric drugs that not a lot of people

are interested in.

companies that are interested, for the third reason, the

FTC may not approve a number of those buyers.

potential purchaser may need to have certain assets or

certain businesses in place such as an R&D department, a

sales department, in the industry, things like that, in

order for them to be acceptable to the Commission as a

potential buyer -- potential acquirer.

You

But even if there are a number of

The

And finally, the fourth reason is that it's my

experience that divestitures in the pharmaceutical field

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tend to need to be tailored specifically to a specific

buyer.

acceptable to the Commission, but let's say buyer A has

expertise in the sales and marketing area of that

product, whereas buyer B has expertise or experience in

the manufacturing of the related products.

case, you know, the divestiture package would be

tailored completely differently if sold to buyer A than

if sold to buyer B.

There may be multiple buyers that would be

And in that

The main issue that seems to come up in

pharmaceutical cases is whether the assets that need to

be divested.

including intellectual property, that is used in the

research, development, production, marketing or sale of

a product needs to be divested.

The agency default is that every asset,

Now, what the parties tend to think, at least in

my experience, is that the assets that should be

divested are those assets that are dedicated or used

solely for the manufacture and sale of that product.

This really becomes a tension when the divesting party

has multiple products that use the same assets.

For example, let's say they have five cancer

drugs that they manufacture and only one of them is an

overlap product with the anticompetitive or that we view

is the anticompetitive effects.

The parties are

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reluctant to divest all of the assets that manufacture

the overlap product because they're used in four other

drugs, and why should they have to give up all those

assets when they're four drugs that they need to make,

that are valuable to the marketplace and, you know, just

give away those assets that are related to the overlap

product.

That makes perfect sense, I understand why

they're thinking about that, but what they have to

remember is that what we are trying to accomplish is to

make the acquirer that's viable and competitive, and

clearly an acquirer won't be viable if they don't have

all of the necessary assets to make or market the

product.

just looking at viability.

and they have to be competitive in a way that's

similarly situated to the divesting party.

would look and see what assets are needed.

Plus, we don't, as others have said, we're not

They have to be competitive,

And so we

If parties want to come to us and bring us a

more narrowly tailored asset package than what's

currently being used to research, develop, manufacture,

market and sell that drug, they need to explain to us

why that will affect viability competitiveness.

had that happen before, people have explained it to me,

it's gotten through, but you have to -- I just want to

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I've

make sure that everyone understands what our default is,

and that I believe it is the burden of the parties to

explain to us why we should move off that default.

And the other issue that seems to come up is

competitiveness doesn't just mean being out into the

marketplace and selling the product.

includes cost competitiveness.

the divesting party and see what -- how that party runs

its business.

is in a similarly situated business.

It means -- it

So that we will look at

And we will make sure that the acquirer

With my example of five cancer drugs, if the

divesting party had five cancer drugs, maybe it spread

its cost over the five drugs and the acquirer is now

just going to have one.

affect the acquirer in terms of costing, procedure,

research and development, because they're not going to

be similarly situated if their cost structure is twice

as high as the divesting party.

able to offer the product at the same price, they maybe

won't be doing innovation at the same issue, but these

are the sort of issues that we look at and these are the

sort of questions we will ask.

We need to see how that will

I mean, they won't be

So, I think that people who bring in mergers in

the pharmaceutical area should be prepared to discuss

these issues when talking about a remedy.

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Third party consents, which is why I started out

with pharmaceuticals, are almost always present in

pharmaceutical mergers.

joint marketing arrangements, joint development

arrangements, co-promotion arrangements, anything you

can think of.

resolved easily by just selling back or reverting back

the rights to a non-party to the merger.

There seems to be a lot of

Co-owned IP.

Sometimes these can be

Other times, they can't just simply be given

back to the non-party of the merger, there has to be

some negotiation that the acquirer will get whatever

rights the divested party has.

comes in, I think, because what I've heard from the

outside bar is, oh, they're holding up this entire --

this third party company asset is holding up this entire

deal so that they can squeeze as much money out of us as

possible to get this third party consent that will go to

the acquirer.

And that's where tension

I want to hear what your comments are on how to

make sure that the Commission gets the goal that it

wants, which is a viable competitive acquirer without

having the parties be held up beyond what is necessary,

of course everyone knows there's going to be some part

of the system where the consent needs to be done, but so

that the consent is gotten at a reasonable rate, at a

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reasonable time period, and we still get our acquirer

who needs everything that they need.

issue that needs to be discussed.

I think that's an

I frankly have tried various outcomes, I've

tried working and being the mediator, I've tried staying

away, and in no case has anyone come out happy with any

of this, least of all me, who is in the middle.

So, I frankly want to just throw this out to

everyone and hopefully you can give me ideas on how we

can do this better in the future.

But my last overall point on this, and I think

this definitely applies to everyone, if outside parties

bring us a strong acquirer, who brings something to the

table, this is clearly going to be something that gets

through the agency quicker, you're going to have less

headaches, there's going to be probably less assets that

have to go along with it.

the table, who needs a lot of property, who needs a lot

of explaining, this is going to be a lengthy time table.

You need to put that into -- you can't expect the

Commission to prop up a weak buyer and have it go

through the Commission in two weeks.

going to happen.

MR. BROYLES:

You bring a weak acquirer to

That's just not

Just to conclude on up-front

buyers, this has obviously been one of the hottest

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issues that we've dealt with in recent years, and I kind

of cringe when I hear people refer to this as an

up-front buyer policy.

I see it instead is a tool that enables us to achieve

the overarching policy of making sure that the

Commission gets the benefit of the deal that is struck.

Our experiences have taught us that in certain

industries and in certain circumstances, a post-ordered

divestiture is not likely to result in the Commission

giving the relief that it negotiated for, which is

namely to restore and preserve the competition that

existed before the merger.

I don't see it as a policy, what

I think by now, circumstances in which these

concerns arise should be fairly obvious to a certain

number of practitioners.

failures of our post-ordered divestitures arose in the

area of supermarkets.

chuckles at the deal Schnuck's divestiture, but what

that told us and taught us along with some other things,

over examples of supermarkets is that we really can't

let supermarkets languish too long in the hands of the

divesting party, because of the quite obvious and maybe

even unintended result that supermarkets will waste away

the longer their future is uncertain.

One of the most celebrated

Everyone around here sort of

And so that by the time a divestiture period

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runs, what is actually being divested in no way

resembles what existed before the merger.

there's anything close to a bottom line on up-front

buyers, it's that you're going to have a high burden to

convince us in the supermarket industry that an up-front

buyer is not necessary.

high because of our past experience.

So, if

Not insurmountable, but often

Our experience has also taught us that when the

idea and when the parties are trying to divest something

less than a complete pre-existing business unit, that

there are going to be questions that we're going to have

to answer that could suggest that an up-front buyer is

necessary, not necessarily absolutely necessary, but

it's going to raise questions that we're going to have

to answer and resolve, and in a lot of instances, an

up-front buyer helps us to answer those questions.

The first one that we have to answer is what we

have seen is that when the people try to cobble together

assets to sort of recreate in their idea, in their mind

the competition that existed, I don't know if there is a

tendency or there is an intent, but what we have seen is

that typically what happens is what is divested falls

far short of what existed before the mergers.

If the parties try to cherry pick the assets for

themselves and then divest what's left, that, of course,

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doesn't meet our goal of making sure that the party

itself is in the -- the acquiring party is in the

position of competing as effectively because they may be

stuck with higher costs, they may be stuck with a less

attractive bundle of assets, or a variety of things that

hamper their ability.

assistance of the perspective purchasers to help us

figure out whether or not what they're actually buying

is going to enable them to compete.

We're going to need the

And we go into that recognizing two things.

Number one, that some buyers have incentive to overreach

and try to get us to help them get more than they

absolutely need in order to compete, and on the other

hand, some buyers come into this with an idea that they

don't -- as I think was mentioned before, their interest

is not necessarily in recreating competition, but in

striking a deal that makes business sense for them.

So, that puts us in a position of trying to

figure out how to balance between those assets, and I

think that an up-front buyer that works -- that we get a

chance to work our way through that process and realize

what the final asset package looks like helps us do

that.

One of the things that we're also concerned

about is when you start cutting away assets, the

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question is are you reducing at that point the pool of

available buyers.

ongoing business unit, then under most circumstances, I

think you're going to have a wider pool of buyers, even

though the extent that we could accept financial buyers

where they are simply buying something that's an ongoing

operation with management that's remaining in place and

all the assets that's needed.

away, then we have got to start figuring out what the --

what the pool of buyers are that have the things that

have been cut away to make sure that what we have in the

end is a completely competitively viable entity.

that's one of the things that we're going to have to

look at.

If you're divesting an existing

When you start cutting

And so

Now, one of the things that -- one alternative

that can help us or to get us more comfortable if there

is still some question is a crown jewel provision.

Crown jewel provisions are basically provisions that

include something that is clearly divestable, something

that will clearly operate and for which there are

clearly identified pool of buyers such that if what you

want to divest we actually can't divest, there is

something that we will be able to sell that will get the

relief that we've negotiated for.

to doing an up-front buyer, but again, the objective is

That's an alternative

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to make sure that when we negotiate for a remedy that we

think is going to restore competition, that the

Commission actually gets that remedy.

One of the things that Chris mentioned, which

she has also been dealing with quite a bit lately, is

when there are third party priority rights, such that in

instances where an asset is joint owners, the other

owner might have a right of first refusal or the right

to match any offer for the assets.

owner is not an approvable buyer, what you're going to

have to do for us is to demonstrate that that buyer is

not going to stand in the way of the relief that the

Commission has negotiated.

to frustrate the Commission's efforts to get relief.

Where that joint

It uses third party rights

Obviously the best thing to do is to bring us a

buyer that has third party rights exhausted.

way is to get a release from the third parties.

it's an issue that we've been dealing with quite a lot

lately, and if there are suggestions or alternatives

that you have for us to deal with this short of the two

alternatives that I just mentioned, I would certainly

love to hear them.

Another

Again

Finally, the other point that I would like to

make is that frequently, and we've run into this on

occasion lately, is that in a situation where the

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parties have a time table for the merger in their mind,

and there are issues which suggest that an up-front

buyer is at least going to be something that we're going

to think about, we have to be persuaded that we don't

need, you really can't afford to spend all of your time

negotiating with us on the merits of trying to convince

us that we don't need relief, and then once we've agreed

on the asset package and the need for relief, come in

and say, oh, by the way, in two weeks I've got to close

my deal, so I don't have time to get an up-front buyer.

You've got to build time into the process for at

least to take a run at trying to persuade us not to have

an up-front buyer, because that kind of an argument is

going to fall on deaf ears, if we have -- if we

legitimately believe that there's a chance that the

Commission won't get the relief that it's negotiated

for.

MR. LIEBESKIND:

Yeah, a couple of quick

comments on fix-it-first and fix-it-myself.

Fix-it-first, in my understanding, refers to the

situation where the parties come in with a merger and

say, we know you're going to have a problem with this,

but we have a solution to your problem, and here's the

solution and we're going to go ahead and do it.

And there is, I think, a general perception in

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the world, or at least I hear there's a general

perception in the world, that DOJ is accommodating of

that view, and the FTC generally is not.

probably some truth to that.

have from time to time when people have brought us

genuine fix-it-firsts, gone along with it and let people

fix their deals without asking them or requiring them or

to submit to a Commission order, or suing them if they

don't do it.

And there's

It's also true that we

It requires a clean fix without continuing

entanglements, and without things that are going to make

us think that there's reasons to think that there's

ongoing obligations of the merging parties that need to

be enforced that won't be enforced if there's not a

Commission order, but it has happened, I've done a

couple of them myself in the last couple of years, and I

think there's a few others lying around, although

generally speaking, it's not the way things go.

Fix-it-ourself is a term I just made up to

characterize the Libby case that we had and Franklin

Electric case at Justice that is what's normally

characterized as litigating a fix.

remedy in mind and the agency doesn't like it and so

we're going to make them sue us and we'll tell the judge

that our remedy is good enough and they should make the

That is I have a

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agency take our remedy.

This is leaving aside whether it's the right way

to make friends and influence people, it is, I think,

going to be problematic, there's a lot of debating after

the Libby opinion came down about whether the government

won the battle and lost the war or lost the battle and

won the war or vice versa, I don't remember which way is

which, and which was the battle and which was the war.

I think I read that decision, although it wasn't

necessarily everything we argued for, as establishing

the basic proposition along the lines of what everybody

said here, which is that if the proposed fix, as in

Franklin Electric, I think there's consistently some

loose language in Franklin Electric that's been quoted

against the government.

somebody else in business, but on a basis that is going

to raise serious issues about their viability and

competitiveness going forward and whether the

constraints on the merging party will be lessened as a

result of this purported fix, I think what we learned

from Judge Walton in the Libby case is that at least one

district judge, I think it's also true of the district

judge in the Franklin Electric case that DOJ had, the

district courts will be sensitive to those issues and

will not allow fix-it-ourselves where the government

If the fix merely keeps

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raises a genuine issue about viability and

competitiveness, even though the competitor has been

preserved or the number of competitors hasn't changed.

So, I think that I, at least, would not

recommend that merging parties assume that they're going

to win a lot of litigating the fix cases and that when

the agency is concerned that a -- when the agency

rejects a proposed fix, because he thinks it's not going

to create a viable competitor, it's going to reserve

competition, we're at least going to have a chance of

persuading a court of that, and that will be the upshot

of it.

So, that's my views on that, but other people

undoubtedly have other views.

MR. SIMONS:

audience?

So, can we take comments from the

MR. DUCORE:

We apologize for going long.

went too long, but --

MR. SIMONS:

Yes, that's what I wrote down, too

MR. DUCORE:

No questions?

MR. SIMONS:

I know Marc has a question.

MR. SCHILDKRAUT:

long.

I have questions.

This relates to -- this

relates to buyers up-front, and I'll give you an example

of this after I finish this, but why aren't you

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concerned that you are divesting their public of the

rights to make comments that have an impact, and what I

mean by that is in the buyer up-front situation, you

certainly require that there be the ability to unwind if

the Commission doesn't think the remedy is good enough,

but what about the situation where the Commission

decides no remedy is necessary?

already been divested, in that situation, and there's no

way to sort of unwind it at that point, the Commission

couldn't even order it, the Commission doesn't have an

order.

Then the assets have

An example that is -- that's reasonable, and the

only reason it didn't come out this way is because it

was slightly before the buyer up-front policy came into

vogue, was a case which I think Dan is familiar with,

which is Nestle/Alpo, where there was a divestiture

required of a factory, and just a factory, not a

business.

I think under present policies, a buyer up-front

would have been required under those circumstances.

Commission after getting 10,000 letters from the local

community, among others, decided that there was, you

know, that there -- relooked at it and decided that

there was actually nothing wrong with the merger to

begin with.

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The

But under the buyer up-front policy, those

assets would have already been divested, those 10,000

people would have been divested of their rights to

explain this to the Commission.

MR. LIEBESKIND:

Well, one approach, of course,

would be to say that the Commission -- that you can't

close the deal until the order is made final, but I

don't think that's what you're looking for.

MR. SCHILDKRAUT:

No.

MR. LIEBESKIND:

One of the things that we have

done, from time to time, and then this goes -- this goes

into what we actually mean by an up-front buyer, and

it's going to depend on the industry in question and the

situation.

where we actually want to get the assets in the hands of

the buyer quickly because of the erosion of good will.

There have been other cases, but what we mean by an

up-front buyer is an identified buyer that can be put

out for public comment, identified before the merger

closes, before the Commission accepts the agreement from

public comment, take comment on the buyer,

transaction -- divestiture transaction to close after

the public comment period, after the Commission makes

the order final.

There's a loft of talk about supermarkets

I know of at least one case where the Commission

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did that, was sufficiently concerned about the quality

of the buyer going into the process, that at the end of

the day, it made the order final, rejected the buyer and

went out and found another buyer.

have also said, you know, you have to find a way to

eliminate it and keep the asset, if it wanted to in that

case.

The Commission could

So, in a situation where the buyer is

questionable and there are ways to preserve the

viability of the asset package in the meanwhile, I mean,

these issues can be dealt with on a case-by-case basis,

I think.

MR. DUCORE:

You're talking about how do you

reserve your right to argue the merits of the case or

hear from the public that suggests that on the merits

there isn't a case, and then release the parties from

the remedy.

was actually a contingency in the divestiture contract

that it would basically be rescinded if the Commission

didn't make the order final.

I guess -- I think I saw one where there

You could do that, I mean, I guess one question

I have is how many buyers are going to be willing to buy

subject to having to give it up in 30 or 45 days if the

Commission decides to let the order go.

balance.

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But it's a

MR. SCHILDKRAUT:

But it's not the seller and

the buyer who care about it at this point, it's the

public.

fine, I'll get rid of the factory, just where do I sign.

It was the public who cared about it and said they would

never under those circumstances try to contract for an

unwind if they didn't have to, they just wanted to get

the deal done.

you need to think about and there's nobody else to think

about them.

In the Nestle/Alpo matter, the seller said

So, it's those other 10,000 people who

MR. BROYLES:

Do you have a suggestion?

MR. SCHILDKRAUT:

Yeah, I mean, I would think --

yeah, my suggestion is that as a general matter,

there -- the -- there should not be consummation until

after the public comment period.

identify the buyer up-front, but the consummation should

wait until after the public comment period.

MR. LIEBESKIND:

You can certainly

And there should be a hold

separate in the meanwhile if we're concerned about the

merging parties' ability to acquire the assets?

MR. SCHILDKRAUT:

all of the different scenarios.

MS. PEREZ:

I mean, you have to consider

No consummation of the divestiture

or -MR. LIEBESKIND:

Oh, no, he wants to consummate

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the merger.

MR. SCHILDKRAUT:

me if I proposed that.

MR. LIEBESKIND:

All of my clients would fire

No, I propose the idea that

they hold off on the merger for 30 days and he didn't

really want to go along with that.

MR. BROYLES:

Marc, I'm not sure, you talked

about a situation where the Commission doesn't enter an

order, just rejects the unwind premise of the buyer.

How would a provision that says you can't consummate as

opposed to one that says that you have to rescind or in

the scenario that you just outlined?

MR. SCHILDKRAUT:

I mean, I assume what we're

talking about is a situation that basically says, you

know, in the -- in the order, in a hold separate

agreement or something like that, you shall hold these

assets separate, but you should be allowed to divest

them until the divestiture is approved by the Commission

until after the public comment period.

MR. LIEBESKIND:

I was going to say we have done

that at least once.

MR. SCHILDKRAUT:

But as a matter of policy, you

seem to generally go in the other direction to get these

very quick divestitures.

MR. BROYLES:

So, if I understand what you're

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saying, you're talking about not having an up-front

buyer as we've defined it with a signed deal.

MR. LIEBESKIND:

No, it's a signed deal, it's

just that it wasn't closed.

MR. SCHILDKRAUT:

You could have it one of two

ways, you could just have -- and I think it would be

sufficient just to have an identified buyer who

basically says, yeah, we haven't crossed all Ts or

dotted all Is, but I've done my due diligence, I'm ready

to buy, and I don't see any problem entering into a

contract.

that you're aware of, is in Exxon/Mobil, with the

northeast divestiture, where it was an identified buyer,

in essence, but there really was no up-front contract.

So, I think under those kinds of circumstances,

And I think a good example of that, Phil,

it leaves a little more flexibility for everybody,

including giving the public the right to comment.

MR. LIEBESKIND:

Well, what happens?

There's a

risk on the Commission, there's a risk on the

Commission, of course, that it will conclude not that

the up-front buyer is the wrong buyer or that the relief

is excessive or that the relief is inadequate as a

result of the public comment period.

cope with that?

with that.

And so how do you

I guess to start with, we have to live

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MR. SCHILDKRAUT:

That's true of an up-front

buyer, you have that problem, so I'm not creating any

new problems.

MR. DUCORE:

I don't want to cut you off, but

let's try to go back.

MR. MacAVOY:

Anything else, Chris?

For the benefit of the reporter,

I'm Chris MacAvoy.

colleague just said, by the way, we'll talk about this

later.

on behalf of Food Marketing Institute which some of you,

I think, have.

I don't subscribe to everything my

We -- from the Howrey firm -- we filed a comment

I wanted to respond and comment, make an

observation about just a couple of things.

Phil in

particular said on the issue of divestitures to in the

retail area -- to small chains and independents, and

Phil said here today, this is completely consistent with

what the Commission has said in the past, that there is

no policy and certainly not an intentional bias at the

agency against divestitures to independents and small

chains.

Nevertheless, you will see in our comment quite

a discussion about the perception that I think is widely

held and I know, you know, you here at the agency have

heard both from small chains of independents and their

representatives, both in the parade and on Capitol Hill

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that there's this perception of a -- that the deck is

somehow stacked against independents, and we would ask

ourselves, well why is this there this disconnect, and I

think we heard maybe part of the answer today.

Chris touched on this, I think she said it very

well, when she referred to there being a default

position, and that I think is what we run into, is that

nobody at the agency ever says, no, we won't accept the

divestiture to somebody who is already in the market,

nobody ever says, no, we have to have zero divestiture

or we have to have divestiture or all of A or all of B,

but these are the preferences, and any deviation from

the template or from the default position adds time,

uncertainty, and frequently seems to add the requirement

that you comply completely with the second request.

And so the net effect of all this -- of this

default and the high burden of what we're coming to

default is that parties again and again seem to

conclude, gee, it's really a thousand miles of bad road

if I try to divest to anybody other than an

out-of-market buyer divesting the entire group of assets

up-front, so that's the way it almost always goes, and

you wind up with this pool of unhappy potential buyers

who maybe wanted to buy a few of the stores or maybe

they were already in this market with a smaller market

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share and they say, gee, I'm discriminated against in

this process.

So, I -- you know, by way of -- that's my

observation, by way of recommendation, I guess what I'm

proposing is frankly just more openness and working with

the parties in a more constructive way maybe than is the

case historically in accomplishing divestitures to some

of these small buyers.

consent order of frequently asked questions, you heard

it here again today, it's in Commission consent orders,

yet somehow in the process it doesn't seem to quite have

that openness and it winds up pushing people again and

again in the direction away from these smaller buyers.

It's out there stated in the

So, I don't know whether that's much of a

concrete suggestion, be more open, but there it is.

MR. DUCORE:

Let me, and I don't want to defend,

not that I don't want to defend, I don't want to take

the time.

experience, I mean, do you get a sense that a lot of

merging parties are eager to divest to, you know,

smaller groups and independents and things like that,

and they feel like it's not worth the effort to go to

the staff with that or is it more that, you know, more

of an overall policy preference that you would like to

see and that your clients really don't care as long as

Let me ask you the question, in your

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they can get their deal done as fast as they can get

their deal done?

MR. MacAVOY:

I have to say I have seen both.

Certainly I have been involved in situations where the

merging parties had, you know, rapping on the door, you

know, one or more smaller buyers, but then on the other

hand, had some large buyers out-of-market and knew that

going -- coming in with the smaller buyers or somebody

who was maybe in-market with a small market share, that

that was just going to be a much longer and tougher

proposition.

were told that by the staff, gosh, we can't say no, but

we can tell you it's going to be hard, it's going to be

long, it's going to have questions across the street,

and that just makes people, particularly when you're

getting towards the end of the, you know, you're looking

at a drop dead date.

They just didn't intuit that, I mean they

MS. PEREZ:

I have a question, are you talking

in general about small buyers over all of the mergers or

specifically about the supermarket industry?

MR. MacAVOY:

My comments and experience are

much more retail specific, although I have heard that

this is an issue in other areas, but my specific

experience is much more retailer specific.

MS. PEREZ:

Well, I can tell you in the couple

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of my cases where I've been the lead attorney and looked

at divestiture, there were a couple of divestitures that

ended up going to much smaller companies than I had

initially anticipated in the beginning, and what seemed

to work for them in convincing me that they were good

viable divestiture candidates is they had the business

people come in, they had the business plan drawn up,

they understood that they were smaller and maybe not the

ideal candidate and they had already prepared for me the

reasons why they were still viable, what advantages they

would bring over the larger candidates, and I have to

say that they really swayed me.

And I think in the couple of divestitures where

this has happened, it's really worked out where the

small divestiture candidate turned out to be an

excellent candidate, but that's how -- I mean, they came

in prepared, knew what their disadvantages were and

talked me over the disadvantages and showed me what

their advantages were, and that seemed to work, at least

for me.

MR. MacAVOY:

that area or anything else, I'll concede the floor.

Anybody else have observations on

MR. DUCORE:

There's more than two questions, I

MS. PEREZ:

Can I ask for somebody to comment on

know.

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these third party consents?

Really, I honestly want to

know what you think I can do to help this process along,

make it easier and yet still get us a viable competitor.

Oh, yeah.

Go ahead, go ahead.

MR. LIEBESKIND:

this question for two years now.

MR. CAREY:

George has been waiting for

Well, I mean, it's the right

question, and it does raise the question of what the

appropriate policy is in a situation where you've got a

third party who exercises veto power, because in that

context, that party is in a position to extract the full

value of the deal minus $1 as the cost of admission if

they're the only potential buyer.

I think the FTC could do a number of things.

think first what the FTC can do is realize what the

incentives are and bring the same degree of skepticism

to the claims of that third party that they bring to the

parties' claims.

do their own thorough review of exactly what the

Commission thinks the party needs in order to be viable,

rather than relying as a default again on what the third

party says they need.

Not advocate their responsibility to

I think it's fine to say that the third party in

a competitive market would be a good proxy and if you

hear from a lot of third parties that they need the

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following bundle of assets that that's useful

information, but I think if there's only one potential

buyer, that it's not a good proxy, and a recognition of

that and an appropriate due diligence as to what the

right package is with the investigatory tools that you

have is a better way to proceed.

And third, much as I'm identified with buyer

up-front as a policy, I guess, and much as I have lots

of good things to say about it in the appropriate

context, I think one ought to think seriously about

whether a buyer up-front is an appropriate policy if

there's only one buyer.

party with rights.

be given to the question of whether in that

circumstance, rather than that being an argument in

favor of a buyer up-front, because if that guy doesn't

come up to the table then there's a divestiture, then

there's a problem, one ought to think about the default

position of allow the deal to close and let the parties

work it out without the blackmail of holding up the

entire transaction hanging over the heads of one party.

If there's only this third

And I think careful thought ought to

My experience suggests that that will yield

quite a satisfactory result, especially if the

Commission has identified the right bundle and has

created an order that says you shall divest this bundle

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at no minimum price with a trustee at the back end.

That, at least, puts a floor on the blackmail that can

be exercised, protects the Commission, and doesn't hold

up the entire transaction.

MS. PEREZ:

Is there something in the middle or

some other mechanism that can be used in terms -- I

can't even think of what it would be, but some sort

of -- I understand that sometimes third parties try to

hold up the parties in their deal, but trying to do a --

when there's a limited amount of buyers and not doing a

buyer up-front, not sure what the assets are needed,

maybe you can get like 99 percent of the way there,

except for this third party consent, and then just do

what you say.

there some alternative mechanism for going around this?

Do you have any suggestions?

MR. CAREY:

Is there something short of that?

I really don't.

I mean, I think

that if there's a legal principle that's been either

adjudicated or statutory or some other principle that

basically says an FTC order, whether voluntarily entered

into or through adjudication trumps the private

contractual provision, I don't see a middle way out.

I think that the Commission has to have more

confidence in its own ability to make the evaluation of

what the right bundle is, and then enter into the order

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and let the parties close and then force a divestiture.

Or if that's too much of a risk, appoint a trustee

immediately to do the divestiture, to take over that

negotiation, understanding that, again, there's a limit

to what can be extracted through the give and take,

because the deal is not being held up as a --

MS. PEREZ:

Why is it different?

Why do the

incentives change on a third party when a divestiture

trustee is in place?

guns just as much?

MR. CAREY:

Why wouldn't they stick to their

Because at that point they can't

hold up.

$100 million product.

they can extract, and that limit makes them more

reasonable.

Let's take an example, a $30 million deal for

MR. SIMONS:

There's a limit as to how much

The one thing that could happen,

though, is if you go to a trustee, the order will

generally say you must divest at any price, even a

negative price.

MR. CAREY:

Right.

MR. SIMONS:

So if there's only one buyer,

they'll say we'll pay a dollar, but if it's a $100

million asset, they pay a dollar, they only get $99

million out of it.

transaction.

Whereas you can't hold up the larger

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MR. CAREY:

That's real problem.

It's a $99

million problem, but there have been examples where the

third party has tried to extract $500 million of rents

by virtue of knowing that they can hold up the

transaction.

MR. LIEBESKIND:

Well, there have also been

examples where we haven't done that, and not with any

third parties who have put themselves in that position,

and so there's examples both ways in my experience -- in

my own experience, and then more broadly in the

Commission's experience, and I think one of the things

that separates the examples is something you alluded to,

George, which is the extent to which we are or are not

comfortable defining the asset package ourselves.

The more -- the more comfortable we are defining

the asset package, the more willing -- and the more that

the third party's issues are simply about price, I think

the more willing we are to identify that as something

that we can -- we can define the asset package and the

merging parties can run the risk that they don't get any

money for it later.

us to define the asset package, because it is more

complicated, more intangible, more confusing, more

whatever, and the more uncomfortable we're going to be

in doing that.

The more difficult it is to -- for

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MS. PEREZ:

And also what does one do with sort

of the Phil example of the right of first refusal when

they are clearly not an acceptable buyer, and they're

holding things up?

MR. CAREY:

Again, if all they're going to get

is a payment for their right of first refusal, because

the entire transaction is not in abeyance while that's

being worked out, I think it becomes a more manageable

risk.

transaction, it's where they have huge leverage and they

can extract rents, basically.

If they have the ability to hold up the whole

But just one other point, on a related but

slightly different point, I've also seen situations

where either the compliant staff or the litigating staff

at the Commission has actually gotten in the fray and

negotiated on behalf of buyers for things that do not

immediately look to be important competitive aspects of

the divestiture package like price, fixed price, and I

think that -- I mean I think everybody ought to

acknowledge that that is an inappropriate role for any

Commission personnel to undertake.

MR. DUCORE:

You're talking about negotiating

the price or are you talking about coming back to the

parties with sort of the staff view that what the

buyer -- proposed buyer says they think they need, the

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staff agrees that they need and if something else is

going to happen there needs to be some flexibility

there.

MR. CAREY:

I'm talking about negotiating a

price.

you paying too much for this, and won't this affect your

competitiveness in the marketplace by paying so much.

think that's an inappropriate statement from the point

of view of the Commission's role and also from the point

of view of the economics and that that's a competitive

view that shouldn't necessarily affect competitors going

forward.

I'm talking about saying to the buyer, aren't

MR. SIMONS:

Let me ask you a question about the

buyer up-front approach.

feeling about, you know, are we doing it too often, if

so, what circumstances are we doing it in that we

shouldn't be doing it in, are there other ways to

approach it that we're not using that maybe we should be

using.

like -- yes, sir?

Does anyone have any kind of

Anyone have any thoughts on that?

MR. KOVNER:

In specifics

Well, one of the issues with buyer

up-front is that -- this builds off George's comment, is

that it gives the FTC an opportunity to discuss with

that buyer what the appropriate terms, even beyond

price, of the deal might be, and so there's nothing

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makes a client angrier than when they start to negotiate

with a buyer up-front and find that the FTC has already

been talking to that buyer and sort of suggesting that

you might want to ask for this, that and the other

thing, and sometimes what the FTC seems to be asking for

is really beyond the core assets and business that would

need to be divested to fix the competitive problem.

It seems like they want to build in a buffer

zone just to make sure, and I'm actually wondering, and

that is sort of a downside, an additional downside, I

think, from the client's perspective to going to buyer

up-front route.

I'm throwing a question back, to what extent does the

staff think it's appropriate and useful and perhaps even

necessary to do that kind of probing and due diligence

with the buyer up-front?

So, I'm actually rather than answering,

MR. SIMONS:

Well, there's I think a balancing

concern there, and sometimes what happens is we will

tell the parties here's our concern, here's what we

think you need to do in order to fix this problem, and

wound up telling them, you know, it's this asset, this

asset, and then they then go to the buyers and they say,

here's what we're selling, and it's a portion of what we

told them we think they need, and they say, if you want

anything, you're going to take this.

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So, we have seen situations in which the buyer

has been told, well, here's what I can get, I can't get

any more than that.

diligence to make sure that kind of a thing hasn't

happened.

MR. DUCORE:

So, we have to do some kind of

Let me -- I would like to ask you

introduce yourself, identify yourself for the record.

MARK KOVNER:

Mark Kovner with Kirkland & Ellis.

MR. DUCORE:

I mean, I think you hit on the --

the underlying tension and probably the reason that

there is a -- that we use up-front buyers, and that is

because if you don't, if you do a post-order

divestiture, you've already written in what the assets

are going to be, and if you find out later that it's too

narrow a package, you know, our ability to expand that

is very limited.

As part of that, though, and as Joe was getting

at, we have learned that buyers sometimes or frequently

come in asking for a small amount, in part because they

figure if they ask for more, the merging parties will

find somebody else who is willing to take less and they

won't be in on the bidding at all, so there's that game

going on, and we have to be alert to, and I don't

think -- well, we try to avoid saying, you should be

acquiring these other things as well, but instead what

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we're trying to do is ask if you -- if this is all you

get, how are you going to make this work, you know, what

else do you need to bring to the deal, and if you don't

have it internally, shouldn't you be getting it as part

of the package as well.

I know that can sound like we're out there

seeding the buyers with ideas for how to ask for more,

but I guess our question is how do you -- how do you get

around that.

that due diligence on our part, how do we avoid that?

If you're going to do that exercise and do

MR. KOVNER:

Well, it would seem to me that

obviously you need to test the viability of the buyer

and the resources and the means and the ability to take

the business and run with it.

diligence seems to be perfectly appropriate.

So, that much due

In terms of whether the package is appropriate,

it seems to me that you can do that principally by

talking to the main buyer, the main transaction, because

you know at this point presumably generally what assets

would need to be part of that package, and if the --

buyer with a capital B is playing tricks on you and

trying to negotiate some smaller package, you have the

ability, because -- ultimately to test that, because

ultimately you have to approve it.

MR. LIEBESKIND:

You would actually be surprised

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at how often we don't know that, but we don't know it

for fairly obvious reasons, because up until the point

where we've -- where we've made a decision or we at

least tentatively have made a decision that there's a --

that there's a fix to be done and that the parties are

willing to talk about that, the litigating staff's focus

is not on what does it take to constitute a viable

business, it's on whether or not there's a competitive

problem.

Which is a somewhat different set of issues.

And you're not really normally in the course of

thinking about whether there's a competitive problem

thinking about now, what exactly are the assets they use

to compete in this business.

other issues, basically.

particularly in a fast-moving transaction, that's not

something that you've given a whole lot of thought to up

until that point.

You're thinking about

And so quite often,

You may have given thought to it as it relates

to competitive issues, as it relates to entry and things

like that, but you haven't necessarily thought about it

in terms of what would it take to constitute a

stand-alone business if you're going to carve up the

seller in some sense.

MR. BROYLES:

And I think we're also sensitive,

I think, to trying not to inject ourselves between

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negotiations between the buyer with the big B and the

buyer of as the assets, but we also, we have concerns

about the buyer as well.

potential exchanges with the buyer that I've mentioned

before is that the buyer may be over-reaching in trying

to negotiate for something that we don't care about, and

then on the other hand it might be under-reaching in

just trying to make a deal.

One of the things, we have two

At some point in that process, we do have to

talk to the buyer, we do have to talk to the buyer about

the assets that it's negotiating for, what it's asking

for, and it seems to me that while we don't want to do

it too early, we don't want to do it too late, also,

because that may also delay -- also would mean you would

be getting your deal done if we go back and we're in a

disagreement about what the buyer is getting.

So, there is a tension there as to when we step

in and do that so we can get to the bottom line quicker,

but also not too early so that we're interfering with

the negotiation process.

MR. DUCORE:

Let me pose a question.

If you had

a choice between spending the time to negotiate the

buyer up-front, which is going to delay your deal, but

will give you the certainty that, you know, this is the

remedy you're going to face, it gives us the benefit, I

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guess, of getting a remedy in place sooner, if you have

that as one choice.

And the other choice was, you know, you get six

months to divest whatever this package is you've

negotiated with the staff, but there is this crown jewel

out there that's looming, which is I think fairly

readily seen to be a self-contained business and is much

larger than that package.

know, six months plus a day the Commission is going to

revoke its rights to trustee and give the trustee that

crown jewel to divest, do your clients out there have a

sense or do you have a sense in which you can recommend

it?

MR. KOVNER:

And you knew that come, you

I would say it would depend on the

factors.

very confident in its ability to sell the assets within

the business within six months, they might want that

extra time and be able to consummate the deal quickly.

On the other hand, certainly I know from experience that

the threat of a crown jewel provision being put into

effect is a huge club, and that is -- that is certainly

an impetus for them to want the buyer up-front, and the

buyer up-front also just will save time in process as

well, I recognize that.

I think if the client felt fairly confident,

When you've got a buyer up-front, you can test

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everything right there, ask them whether the assets are

sufficient.

sometimes -- in a negotiation of a consent decree and

also conceivably the hold separate just takes a lot more

time.

longer process.

When you don't have the buyer up-front,

So, sometimes not having a buyer up-front means a

I think just that.

MR. SIMONS:

How about experiences with the DOJ,

are they doing stuff that, you know, is much better than

we're doing and we need to, you know, copy them or vice

versa?

Anything like that?

(No response.)

MR. LIEBESKIND:

MR. SIMONS:

I guess not.

There are no DOJ people here, other

than a former DOJ person who is sitting in the back.

John?

MR. NANNES:

I don't know what's transpired

recently in the past year or so, but certainly if you go

back over time and track what other agencies do, it's

quite evident I think that the Federal Trade Commission

is much, much more thorough when it comes to divestiture

process than currently Justice has been.

Now, I don't know whether that means that

Justice is too relaxed about it and that the FTC is too

much -- is too concerned about it, but I think it may be

fair to say that one of the greatest disparities between

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the two agencies today is not so much what they do

substantively in terms of interpreting Section 7, but it

really is quite the diversity that they bring towards

the divestiture process.

I know when I was at the department, there were

some instances where people would come in with proposed

fix-it-firsts and that we would look at that and if the

private parties had negotiated the transaction and they

were credible parties, so you had good cause to believe

that they were taking into account the proper

circumstances, the department would let the proceedings

transact and not even bother getting a consent decree.

And I think a couple of times that backfired because

when deals turned out to not go as envisioned, there

were private contractual remedies but no public interest

remedy that the department had to enforce.

On the other hand, one of the incentives you had

if you do allow the party to fix it first, and I

think -- if you think fix-it-first is better than a

contracted post consummation divestiture and a potential

trustee, then I think the agencies have some obligation

to make the fix-it-first mechanism easier for the

parties.

negotiate fix-it-first and come up with an incredibly

good asset package and a very substantial buyer, that

And by that I mean that if the parties do

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the Commission or the Antitrust Division, depending on

which agency, might be prepared, I think with some

cause, to assume that some of the issues that the agency

might otherwise have to work through, that they can rely

on the parties to work through given their credibility

and their reference to a fix it first that's fully

vetted.

So that you do want to encourage people, so I

think the best public policy is to have fix-it-first and

a credible buyer and know what you're getting, although

subjected to post-consummation divestiture rights.

MR. SIMONS:

Were there particular types of

transactions that the division would consider, you know,

most appropriate for fix-it0firsts and certain types

that they would consider least appropriate?

MR. NANNES:

I don't know that we had judgments

that were industry-specific, I think we looked at a

number of factors and with Ann and others that were

identified here today.

the criteria that come out of the Pitofsky speech, for

example, if it's a freestanding incorporated entity and

you're not moving any assets out, then you have some

cause to believe that if they were, if you're coming out

of a particular entity, certain assets were worse than

trying to take assets from the acquiring entity and

Some of the things -- some of

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buying some of those from the acquirer entity and just

with the intent that they were going to work creates

greater skepticism.

What I don't know, I don't think the department

has gone back and looked over time at a divestiture

study to test whether it's properly calibrated those

risks or whether they needed to address it as too

tolerant.

MR. SIMONS:

Jaret?

MR. SEIBERG:

Thanks, John.

Can you explain why in the

Bayer/Aventis deal there was an up-front buyer in one

market but not in the other ones?

that order, it just doesn't seem clear why the

Commission wanted it for only one market.

MR. LIEBESKIND:

I mean, if you read

Well, the simple version of it,

the complicated version of it I would mess up, but the

simple version is that the up-front buyer situation was

one where there wasn't a complete business.

other ones, whether they were complete businesses or

not, were more complete.

And the

I mean, this notion of a complete business is

something that's a little problematic, because it's a

little bit of a fiction.

say we're getting a complete business, isn't always like

What's being divested, when we

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completely complete, it doesn't necessarily include the

information systems, it doesn't -- it might not include

this, might not include that, corporations aren't really

organized that way quite often.

So, it's more of a -- it's more of a more or

less complete business versus a less or more complete

business.

up-front buyer in the Bayer case is -- was one that was

very much not a stand-alone business.

divest manufacturing, they did not divest processes and

things, basically that was -- had already -- it was a

business that had already existed as a toll production

business for Aventis, that is Bayer was already before

the merger making the stuff that Aventis was selling,

and so what we did was we said, well, if you get

somebody else who wants to step into Aventis' shoes,

it's a little -- we don't know how likely it is that you

are going to find somebody like that, so you better find

them now, whereas the other -- the other divestitures

were more like, I don't know if I want to call them

stand-alone businesses, but were more like stand-alone

businesses than the -- whatever it was business,

Tribufos business.

that, so --

The business that was divested with an

They did not

But comment period is still open on

MR. DUCORE:

Well, let me throw another question

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out.

fairly, for not getting sort of the remedies people

involved with the investigative staff until fairly late

in the game, which then slows down the negotiation

process, and over the last number of years, we've been

making conscious efforts to not -- to not leave that

towards the end.

We've been criticized in the past, I think,

Is there a perception that that is improving or

is it not improving and it's still a major problem?

it still an annoyance or what do people think?

we're doing just fine.

MR. LIEBESKIND:

I guess

There's a perception that the

remedies people are getting involved too early.

MR. SIMONS:

Well, sometimes it's at all.

MR. DUCORE:

Well, if we were going to -- I

mean, I don't want to cut anybody off, but I just want

to hold hands up, but if we were going to go back and

look more at -- how should we be figuring out whether

we're engaging in overkill here?

we get criticized for pushing for up-front buyers in too

many cases?

for wanting hold separates and maybe more often than we

should, and again, you know, we don't know how to assess

whether we are or aren't other than, you know, arguing

on a case-by-case basis, but does anybody have any ideas

I mean, you know, do

How should we test that?

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We get critiqued

about how we could go back and look at what we've done

to assess whether, you know, we didn't really need it

here or, you know, we should have done it?

probably easier to find out how we should have done it

in failures, but how do you gauge a success and decide

whether we were overdoing it in our negotiation?

It's

MR. SIMONS:

We'll take written comments, too.

MR. DUCORE:

Anonymous, too.

MR. SIMONS:

Whether you email it anonymously or

send it over, we'll accept that, also.

MS. HIGGINS:

Well, let me weigh in a little bit

on this, this is Claudia Higgins with Kay Scholer.

I am now representing a third party in one of

your transactions who purchased assets, and it's clear

to me that the agency did a very careful job of trying

to make sure that the parties had cobbled together

enough assets for this divestiture, but I can tell you

that when the cobbling together has occurred, it does

create little niches that are problems.

have to some degree worked out some of those problems,

and but also had to come back to you to say we need you

to apply some pressure here on the parties to this

transaction.

And I mean, we

So, the care with which you put together the

order is something that I would not want you to relax,

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given the experience I've just had.

Now, I may at some point have other clients who

will kill me for these words, but I think that it is

very important for the agency to continue to be asked

about these things.

in the order that I am speaking of that are problematic.

Now, it turns out that before I got involved in this, my

client was saying, sure, those words are no problem,

because they were in hand with the parties to the

transaction.

identified, and I think that issuance is appropriately

placed.

There are a couple of little words

And that's exactly the problem we've

MR. DUCORE:

Well, I mean, we don't have to

leave now, people can leave if they want.

to cut off discussion, but -- before we close, Jim,

before you speak, I mean, I want to say that there is

this email address, remedies@ftc.gov, which I am not

aware of anybody having used yet, but seriously, you

know, we -- I mean, one of the things -- one of the

reasons we're having -- we had this session today is

because, you know, there has been some level of

criticism out there about what we're doing and where

we're overplaying our hand, and, you know, if there's --

if those are legitimate concerns, we would expect to

hear them and, you know, with a little more formality

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I don't want

behind them.

So, people should be feeling free to submit

comments, I'm sure you can figure out a way to submit

anonymous comments through regular mail, and the point

is we actually do want to hear and that I'm frankly a

little surprised that we didn't hear more today.

thought we were going to be sitting ducks up here.

But Jim, you wanted to criticize.

MR. FISHKIN:

I'm Jim Fishkin at Swidler Berlin,

used to be at the FTC for a long time.

I just want to

make a few comments in the various comments I've heard.

The first one is what Marc started off with, I

guess he left the room.

do about public comments when you have an up-front

buyer, and you want to have the up-front buyer's deal

consummated right away, and when we did on -- I can

think of two examples that may bridge the gap that Marc

talked about.

Marc talked about what do you

One was the Jitney Jungle/Delchamps deal, which

was a late 1997 deal, and this stretches my memory a

little bit, but I think at the time we were just -- well

we, when I was at the FTC, the FTC was just switching to

up-front buyers, and there was an up-front buyer

identified in the order and they had a contract to

consummate, but they could not consummate until the

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order was final.

And so those were the days of 60-day public

comments, and there was a short-term asset maintenance

agreement, and today, those would be even shorter

because it's a 30-day public comment period rather than

a 60-day public comment period.

though, if you get a lot of public comments, then that's

really going to stretch out the time, so you never know

for sure.

I want to add a caveat,

And when we did another smattering case with

Mark, who is here, it was the Albertson's/American

Stores deal, although the up-front buyers could

consummate before the order became final, there were

staggered consummation periods for each of the buyers,

and some of those were, you know, like 90 days or 120

days, so there was room for the public to comment on it.

So, I guess my point is, maybe Marc's example

could be worked out with this 30-day public comment

period, or at least a lot more -- or a lot easier than

it could be when there was a 60-day public comment

period.

15-day public comment period just for the buyer but not

necessarily the orders, at least, you know, the

concerned public would have some opportunity to comment,

even if it's not quite as extensive as previously.

Where maybe you could even add, I don't know, a

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Chris MacAvoy and I worked on a lot of

supermarket cases, I need to comment on what he said,

and this was on the perception of a small buyer for

supermarkets versus a chain and then Chris said, well,

it may, you know, the staff had said it may take longer

with the small buyers, and I just do want to add in, and

I have to put in Claudia's caveat, in case I come back

here on some other deal, but the small buyer issue may

also raise competitive issues, because a chain is

usually vertically integrated where they're buying

themselves and their own distribution centers and small

buyers don't have that due to their size, they have to

go to a wholesaler, and in some of these cases, the

wholesalers also own retail stores in the same market,

so you get other horizontal and vertical issues that

come up, and that sometimes adds to the time period.

And finally, Chris, this is on your third party

comments, and third party rights, the only example I can

think of, and this is quasi relevant to what you were

saying, is in the supermarket cases, what about

landlords?

least there was a provision in some of those other

orders, saying that, you know, the third parties offer

to waive their rights and it usually meant the landlord.

But in some of the cases I worked on, the

Because there's a provision that says, or at

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landlord, there were cases where the landlord was very

reticent to jettison their rights if there were, let's

say, 25 years left on the lease.

that the landlords articulated had to do with

competitive issues, because they would say I've got a

strip mall and the supermarket is the anchor, and the

success of the mall depends on the strength of the

anchor.

they're not going to be as good, and they have done

their own competitive analysis.

that they've identified may have been missed by the

staff or would complement some of the concerns that the

staff raised all along.

A lot of the reasons

And if you want this buyer in, I'm concerned

MR. MacAVOY:

And some of the reasons

Although it's amazing how a big

check would just make those concerns disappear.

MR. FISHKIN:

No comment, I never got involved

in those negotiations.

Thank you.

MR. SIMONS:

Thanks, Jim.

MR. DUCORE:

Okay?

MR. SIMONS:

Well, thanks everyone for coming

and like we said, if you have other comments, you want

to send them in, that would be great, or just, you know,

call Dan, he's got nothing to do, right, Dan?

No, seriously, we really do want to get your

comments.

So, if you have any authority, please help us

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out.

(Whereupon, at 1:37 p.m., the workshop was

concluded.)

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C E R T I F I C A T E

O F

R E P O R T E R

CASE TITLE:

HEARING DATE:

WORKSHOP ON REMEDIES PROCESS

JUNE 18, 2002

I HEREBY CERTIFY that the transcript contained

herein is a full and accurate transcript of the notes

taken by me at the hearing on the above cause before the

FEDERAL TRADE COMMISSION to the best of my knowledge and

belief.

DATED:

6/19/02

Sally Jo Bowling

C E R T I F I C A T E

O F

P R O O F R E A D E R

I HEREBY CERTIFY that I proofread the transcript

for accuracy in spelling, hyphenation, punctuation and

format.

Sara J. Vance

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.