February 12, 2015
Divest more assets, find a stronger buyer, and hire–at your expense–a monitor that will scrutinize every step of the divestiture process, or the antitrust agencies will challenge the transaction in court. That is increasingly the message that the leadership of the Department of Justice ("DOJ") and Federal Trade Commission ("FTC") are sending to merging parties seeking to clear the merger review process through a remedy.
On February 6, 2015, Bill Baer, the Assistant Attorney General of the DOJ’s Antitrust Division, affirmed that "taking a harder look at remedies" continues to be an ongoing DOJ focus. Mr. Baer described DOJ’s willingness to ‘litigate the fix’, as the Department did in the American Airlines/US Airways and AB InBev/Grupo Modelo matters. Mr. Baer also noted that DOJ "will continue to focus on obtaining effective relief where we find antitrust violations," and that he "applaud[s]" the FTC’s recent announcement of a sweeping new study to assess the efficacy of its recent remedies, which, as described below, strongly portends more onerous FTC remedy demands going forward.
Collectively, the policies of the DOJ and FTC have produced clear trends:
These actions have several important implications. For merging parties, they can increase the cost, difficulty, and risk of addressing agency competition concerns, and may extend the time required to negotiate and implement divestiture packages. Greater FTC and DOJ remedy demands make it more essential than ever that parties carefully evaluate the viability of an acceptable divestiture or conduct remedy prior to executing a transaction they expect to generate antitrust scrutiny. The agencies’ stepped-up approach to merger remedies also provides opportunities for third parties to acquire increasingly larger and more attractive divestiture packages. Successfully purchasing divestiture assets can also require careful upfront planning, sometimes in collaboration with the merging parties. More attractive divestiture packages can generate competition among potential buyers to demonstrate to the parties that they can close quickly and convince the antitrust agencies that they can rapidly, if not immediately, replicate the pre-merger level of competition.
New FTC Merger Remedies Study
On January 9, 2015, the FTC announced a proposal to conduct a retrospective study of merger remedies to "assess the effectiveness of the Commission’s policies and practices regarding remedial orders where the Commission has permitted a merger but required a divestiture or other remedy." The proposed study will examine 92 merger remedies that the FTC entered into from 2006 to 2012. For 53 of the remedies, the FTC plans to interview the buyers of the divested assets and participants in the industry, including the merged parties. For the 15 orders involving divestitures of supermarkets, drug stores, funeral homes, hospitals and other clinics, the FTC will send questionnaires to the buyers of divested assets. For the 24 orders involving divestitures in the pharmaceutical industry, the FTC intends to synthesize the information it has from compliance reports, monitors, and publicly available information. The announcement says that the FTC may subpoena documents and data if needed.
If past is prologue, the study will result in the FTC further increasing the requirements that the parties need to satisfy for the Commission to accept a remedy proposal. The FTC conducted a similar study in 1999, which produced recommendations that required merging parties to enhance remedy packages, including by divesting larger asset packages and requiring buyers to "submit an acceptable business plan" for the acquired assets. The FTC also affirmed policies that favored "divestitures of full, freestanding business units" and began requiring sellers to "facilitate the transfer of technology and knowledgeable staff to the buyer in addition to physical assets." Although the Commission maintained that these changes did not "raise the bar for resolving merger concerns," this claim is difficult to reconcile with the practical implications of the study’s recommendations. Moreover, in announcing its latest study, the Commission stated it would "focus on more recent orders" because many recent orders "incorporated modifications based on the prior [1999 Study]." This language signals that the Commission will evaluate whether the changes implemented after the 1999 Study have gone far enough to ensure that merger remedies are effective.
The possibility of additional remedy requirements is further enhanced by several high-profile failed merger remedies. In particular, in late 2014, the FTC closed the books on what was widely viewed as an unsuccessful attempt to remedy the alleged reductions in competition from the Hertz-Dollar Thrifty transaction. Two years earlier, in 2012, the FTC required Hertz to divest its low-cost brand, Advantage Rent a Car, to Franchise Services of North America, which previously operated other rental car outfits, including Rent-A-Wreck, to ameliorate the alleged anticompetitive effects resulting from Hertz’s acquisition of Dollar Thrifty. Notably, the Advantage divestiture included many of the hallmark requirements that came out of the 1999 Study: there was a hold-separate requirement; a buyer was identified in the order (an "up-front buyer"); that buyer was an experienced rental car business operator; Hertz was required to provide support and necessary assets to Advantage; and an independent monitor oversaw the divestiture. Just a year later, however, Advantage filed for bankruptcy after Hertz terminated lease agreements that provided Advantage with its rental vehicles. Advantage’s bankruptcy trustee has sold many of Advantage’s locations to other rental car companies already serving the same airport markets–including selling 10 of the original 72 divested locations back to Hertz and 12 others to Avis. In each of these locations, the divestiture has failed to maintain the number of competitors that were in the market prior to the merger.
The FTC is accepting comments on the proposed new study until March 17, 2015, and the study itself will likely take more than a year to complete. But the Commission began implementing the recommendations contained in its 1999 Study even before it publicly released the study’s results, and we expect the Commission’s remedy requirements to grow even before it announces formal policy changes stemming from the results of the new study.
 See Bill Baer, Assistant Attorney Gen. Antitrust Division, Dep’t of Justice, Remarks as Prepared for Delivery at the Global Competition Review Fourth Annual Antitrust Leaders Forum: Reflections on Elements of Effective Antitrust Enforcement (Feb. 6, 2015), available at http://www.justice.gov/opa/speech/assistant-attorney-general-bill-baer-delivers-remarks-global-competition-review-fourth.
 Id.; see also Press Release, Office of Pub. Affairs, Dep’t of Justice, Justice Department Requires US Airways and American Airlines to Divest Facilities at Seven Key Airports to Enhance System-wide Competition and Settle Merger Challenge (Nov. 12, 2013), available at http://www.justice.gov/opa/pr/justice-department-requires-us-airways-and-american-airlines-divest-facilities-seven-key; Press Release, Office of Pub. Affairs, Dep’t of Justice, Justice Department Reaches Settlement with Anheuser-Busch InBev and Grupo Modelo in Beer Case (Apr. 19, 2013), available at http://www.justice.gov/opa/pr/justice-department-reaches-settlement-anheuser-busch-inbev-and-grupo-modelo-beer-case.
 Baer, supra note 1; see also Press Release, FTC, FTC Proposes to Study Merger Remedies (Jan. 9, 2015), available at http://www.ftc.gov/news-events/press-releases/2015/01/ftc-proposes-study-merger-remedies.
 FTC, A Study of the Commission’s Divestiture Process (August 6, 1999), available at http://www.ftc.gov/reports/study-commissions-divestiture-process.
 Edith Ramirez, Chairwoman, FTC, Remarks at the ABA Retrospective Analysis of Agency Determinations in Merger Transactions Symposium: Retrospectives at the FTC: Promoting an Antitrust Agenda (June 28, 2013), available at http://www.ftc.gov/sites/default/files/documents/public_statements/retrospectives-ftc-promoting-antitrust-agenda/130628aba-antitrust.pdf.
 David Balto, Former Assistant Dir. of Policy and Evaluation, FTC, The Evolving Approach to Merger Remedies, Antitrust Report (May 1, 2000), available at http://www.ftc.gov/public-statements/2000/05/evolving-approach-merger-remedies.
 See Press Release, FTC, FTC Requires Divestitures for Hertz’s Proposed $2.3 Billion Acquisition of Dollar Thrifty to Preserve Competition in Airport Car Rental Markets (November 15, 2012), available at http://www.ftc.gov/news-events/press-releases/2012/11/ftc-requires-divestitures-hertzs-proposed-23-billion-acquisition.
 See Reuters, Advantage to File for Bankruptcy as Hertz Cuts Car Supply, Reuters (Nov. 5, 2013), available at http://www.reuters.com/article/2013/11/05/us-advantage-hertz-bankruptcy-idUSBRE9A411O20131105.
 See Press Release, FTC, FTC Approves Franchise Services of North America’s Application to Sell Certain Advantage Rent a Car Locations to Hertz and Avis Budget Group (May 30, 2014), available at http://www.ftc.gov/enforcement/cases-proceedings/101-0137/hertz-global-holdings-inc-matter.
 See FTC, A Study of the Commission’s Divestiture Process (August 6, 1999), p. iv, available at http://www.ftc.gov/reports/study-commissions-divestiture-process.
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