Resolution without Litigation

• Pages: 389-447

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CHAPTER X

RESOLUTION WITHOUT LITIGATION

Even if the reviewing agency concludes that a proposed transaction

would likely violate the antitrust laws and should be challenged, the

parties may still resolve the agency’s competitive concerns while

avoiding litigation.821 In fact, almost all merger concerns today are

resolved through bilateral negotiations rather than litigated court

decisions.822 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

the reviewing agency allowing the transaction to go forward but only on

specified terms. Generally, the order will require the parties to take

821. Only a small percentage of transactions ever reach this stage. For

example, in fiscal year 2010, 1,166 transactions were reported under the

Hart-Scott-Rodino Antitrust Improvements Act (HSR Act), but the

agencies issued only forty-six Requests for Additional Information and

Documentary Materials (second requests). (The Federal Trade

Commission (FTC) issued twenty and the U.S. Department of Justice

(DOJ or Antitrust Division)) issued twenty-six.) Over the course of fiscal

year 2010, the FTC challenged twenty-two transactions, resulting in

eighteen consent orders, one administrative complaint, and three

abandoned deals. During the same period, the DOJ challenged nineteen

transactions, leading to ten consent decrees, one matter in litigation, four

restructured transactions after the DOJ expressed its concerns, and four

abandoned transactions. FED.TRADE COMM’N&U.S.DEP’T OF JUSTICE,

HART-SCOTT-RODINO ANNUAL REP.FISCAL YEAR 2010. In fiscal year

2009, 716 transactions were reported under the HSR Act, and the

agencies issued thirty-one second requests. (The FTC issued fifteen and

the DOJ issued sixteen.)

822. Joe Sims & Michael McFalls, Negotiated Merger Remedies: How Well

Do They Solve Competition Problems?, 69 GEO. WASH. L. REV. 932

(2001).

390 The Merger Review Process

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.823

The U.S. Department of Justice’s (DOJ or Antitrust Division) consent

decrees are filed in district court, and the Federal Trade Commission’s

(FTC or Commission) consent orders are issued directly 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 solution implemented by the parties that the

Division accepts before a merger is consummated.”824 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 settlements 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.825 In rare circumstances,

under appropriate facts, a restructuring of the ownership of one of the

parties may solve the competitive problem.826 As used by DOJ and this

823. The Tunney Act mandates publication of any proposed consent decree for

a sixty-day public comment period. 15 U.S.C. § 16(b). See Chapter

X.C.3. The FTC Rules provide for a similar procedure. 16 C.F.R.

§ 2.34(c); FED.TRADE COMM’N,OPERATING MANUAL, Chapter 6, § 7.1

(1991) (FTC Operating Manual), available at http://www.ftc.gov/foia/

ch06consents.pdf.

824. U.S. DEP’T OF JUSTICE, ANTITRUST DIVISION POLICY GUIDE TO MERGER

REMEDIES (2011) (DOJ Merger Remedies Guide), available at

http://www.justice.gov/atr/public/guidelines/272350.pdf, at 22.

825. Although a new HSR filing will generally not be necessary if the buyer is

acquiring fewer assets than originally proposed, the agencies have not

delineated clear guidelines on this issue. As a result, it is possible that an

amended transaction may generate new filing obligations under the HSR

Act. In addition, a third-party transaction might be separately reportable

pursuant to normal HSR rules.

826. See, e.g., Final Judgment, United States v. Univision Commc’ns, No.

1:03CV00758 (D.D.C. Dec. 22, 2003), available at http://www.justice.

gov/atr/cases/f202100/202184.htm (Univision required to divest a portion

of its stake in Entravision and relinquish certain governance rights,

Resolution Without Litigation 391

Handbook, fix-it-first does not include the transaction parties’ unilateral

decision to restructure their transaction.827 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.

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 requires parties to 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

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

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, allowing Corn

Producers International to compete independently of the merged entity).

827. DOJ Merger Remedies Guide,supra note 824, at 22 n.46. 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,” with the judge considering whether the reformed

transaction violates Section 7. Some examples in which the transaction

parties presented in court reformed transactions include United States v.

Dairy Farmers of Am., 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. 2004); FTC v.

Libbey, Inc., 211 F. Supp. 2d 34, 46 (D.D.C. 2002); United States v.

Franklin Elec., 130 F. Supp. 2d 1025 (W.D. Wisc. 2000).