Chapter VIII. Resolution Without Litigation
| Pages | 301-352 |
The Merger Review 301
CHAPTER VIII
RESOLUTION WITHOUT LITIGATION
Even if the reviewing agency concludes that a proposed transaction
would likely violate the antitrust laws and should be challenged,1 the
parties may still resolve the agency’s competitive concerns while
avoiding litigation.2 In fact, almost all merger concerns today are
resolved through bilateral negotiations rather than litigated court
decisions.3 The option of resolution without litigation is particularly
valuable in transactions involving multi-product companies where the
reviewing agency’s antitrust concerns arise out of a discrete overlap or
set of overlaps that can be eliminated by partial divestiture without
unduly affecting the economics of the deal.
Under the most common approach, the parties enter into a negotiated
consent decree or order (consent order) with the reviewing agency. A
consent order begins with a binding agreement between the parties and
1 In order to prevail on a Section 7 Clayton Act claim, the antitrust
enforcement agencies must demonstrate that the transaction is likely to
reduce competition below existing levels and that this reduction of
competition is likely to have anticompetitive effects in the relevant
market either as a result of higher prices, reduced quality or services, or
reduced innovation. See United States v. General Dynamics Corp., 415
preliminary injunctions to prevent violations of Section 7. The courts
have required the agencies to demonstrate a reasonable or substantial
likelihood of success on the merits in order to obtain such preliminary
injunctions, which often terminate an acquisition effort by the parties.
2 Only a small percentage of transactions ever reach this stage. For
example, in fiscal year 2004, 1,454 transactions were reported under the
HSR Act, but the agencies issued only 35 second requests. (The FTC
issued 20 and DOJ issued fifteen.) Over the course of that year, the FTC
challenged fifteen transactions, resulting in ten consent orders, a litigated
case, three abandoned deals, and an administrative complaint. During the
same period, DOJ challenged nine transactions, leading to five consent
decrees, a litigated case, two abandoned deals and a transaction
restructured after DOJ expressed its concerns. FEDERAL TRADE COMM’N
AND DEP’T OF JUSTICE, ANNUAL REP. TO CONG. FISCAL YEAR 2004.
3 Joe Sims and Michael McFalls, Negotiated Merger Remedies: How Well
Do They Solve Competition Problems?, 69 GEO. WASH. L. REV. 1701
(2001).
302 Resolution Without Litigation
the reviewing agency allowing the transaction to go forward but only on
specified terms. Generally, the order will require the parties to take
certain steps — in most cases structural remedies (typically divestitures)
— to resolve the agency’s competitive concerns. The consent order is
filed publicly and is subject to notice and public comment.4 Antitrust
Division cases are filed in district court, and the FTC’s cases are issued
by the Commission. Upon entry, the consent order becomes an
enforceable court order (in the case of the Antitrust Division) or
Commission order (in the case of the FTC).
A less common solution that is used by the Antitrust Division, but
rarely by the FTC, is referred to as a “fix-it-first.” The DOJ defines fix-
it-first as “a structural remedy that the parties implement and the
Division accepts before a merger is consummated.”5 Under this
approach, the merging parties propose and implement structural remedies
that resolve the competitive problem prior to closing their transaction and
without the need for a formal consent decree.
Fix-it-first may take many forms. Currently the most common form
is for the parties to sell voting securities or assets of a particular
subsidiary or division to a third party.6 In rare circumstances, under
appropriate facts, a restructuring of the ownership of one of the parties
may solve the competitive problem.7 As used by DOJ and this Practice
4 The Antitrust Penalties and Procedures Act (Tunney Act) mandates
publication of any proposed consent decree for a 60-day public comment
period. 15 U.S.C. § 16(b). See infra Chapter VIII.C.3. The FTC rules
provide for a similar procedure. FEDERAL TRADE COMM’N, FEDERAL
OPERATING MANUAL, at Chapter XII.2.33 and XII.2.34 [hereinafter FTC
OPERATING MANUAL].
5 U.S. DEP’T OF JUSTICE ANTITRUST DIV., ANTITRUST DIVISION POLICY
GUIDE TO MERGER REMEDIES, at 26 (2004) [hereinafter DOJ MERGER
REMEDIES GUIDE], available at http://www.usdoj.gov/atr/public/
guidelines/205108.htm.
6 A fix-it-first may generate new filing obligations under the HSR Act. In
addition, a third-party transaction might be separately reportable.
7 See, e.g., United States v. Univision Communications, Inc., No.
1:03CV00758 (D.D.C. Dec. 22, 2003), available at
http://www.usdoj.gov/atr/cases/vf202100/202184. htm (Univision
required to divest a portion of its stake in Entravision and relinquish
certain governance rights, including its right to two seats on Entravision’s
board of directors); United States v. Archer-Daniels Midland Co., 272 F.
Supp. 2d 1 (D.D.C. 2003) (Archer-Daniels Midland and Minnesota Corn
Processors required to dissolve the joint venture between Minnesota Corn
Processors and independent wet corn miller Corn Producers International,
The Merger Review 303
Guide, however, fix-it-first does not include transaction parties’
unilateral decision to restructure their transaction.8 Additionally, while
abandonment of a transaction in response to an agency challenge
technically fixes the competitive problem from the agency’s point of
view, the definition used here does not include abandoned transactions,
either.
Although the agencies are, generally speaking, similar in their policy
approaches to resolution without litigation, the FTC and the Antitrust
Division employ different procedures for doing so, which may affect the
timing considerations involved. Careful planning for any transaction
likely to draw antitrust scrutiny should evaluate these considerations
prior to announcing, or filing an HSR notification, for, the transaction.
A. Strategic Considerations in the Timing and Substance of
Proposed Resolutions
Although the discussion of proposed resolutions is placed in this
Practice Guide after the discussion of the agency review and decision-
making process, there is no reason that parties have to wait until after the
reviewing agency reaches a decision about the legality of the transaction
under the antitrust laws to propose a resolution. To the contrary, in some
circumstances, it may be preferable to propose a resolution well in
advance of an agency decision. Apart from interagency procedural
differences, which are discussed below, several other considerations
influence the substance and timing of the parties’ efforts to resolve the
Inc., allowing Corn Producers International, Inc. to compete
independently of the merged entity).
8 DOJ MERGER REMEDIES GUIDE, supra note 5, at 19 n.36. Such a
unilateral approach — which is also an option for parties with a merger
before the FTC — may or may not resolve the reviewing agency’s
concerns. If the unilateral fix does not, in the agency’s view, eliminate
the competitive harm, the agency may still decide to sue to enjoin or
unwind the merger. The parties could then decide, in essence, to force
the agency to “litigate the fix,” and hope that the court would
acknowledge the new competitive landscape created by the parties’
attempted solution and find no problem exists. The agencies have had
mixed results litigating such cases. See, e.g., United States v. Dairy
Farmers of America, 2004-2 Trade Cas. (CCH) ¶ 74,537 (E.D. Ky. Aug.
31, 2004), rev’d and remanded, 426 F.3d 850 (6th Cir. 2005); FTC v.
Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004), appeal dismissed
per curiam, No. 04-5291, 2004 WL 2066879 (D.C. Cir. Sept. 15, 2004);
FTC v. Libbey, Inc., 211 F. Supp. 2d 34, 46 (D.D.C. 2002); United States
v. Franklin Electric, 130 F. Supp. 2d 1025 (W.D. Wisc. 2000).
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