Strict(er) Scrutiny: The Impact of Failed Divestitures on U.S. Merger Remedies

• Author: Christopher A. Wetzel
• Published date: 01 September 2019
• Date: 01 September 2019
• DOI: http://doi.org/10.1177/0003603X19863587
• Subject Matter: Articles

Article
The Antitrust Bulletin
2019, Vol. 64(3) 341-386
Strict(er) Scrutiny: The Impact
ª The Author(s) 2019
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of Failed Divestitures
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DOI: 10.1177/0003603X19863587
on U.S. Merger Remedies
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Christopher A. Wetzel*
Abstract
Antitrust review of mergers and merger remedies, in particular, have been the topic of much recent
conversation both in the legal world and popular political discourse. A recent string of failed divestitures
has driven the U.S. antitrust agencies to analyze proposed remedies and proposed divestiture buyers with
increasing scrutiny as they seek to avoid similar outcomes. This article details the history of recent
divestiture failures and explores how the agencies have adapted their remedy vetting process in response
through longer investigations, enhanced focus on particular aspects of buyers’ qualifications, and an
increased insistence on up-front buyers, as well as the agencies’ success in persuading courts that proposed
divestitures and/or buyers were inadequate in a series of recent litigated merger challenges. Against this
backdrop, this article offers practical guidance for merger parties and would-be buyers to navigate the
approval process amid the agencies’ heightened sensitivities to the qualifications of divestiture buyers.
Finally, it suggests that there is little empirical support for the notion that the most concrete, observable
agency responses will reduce the risk of divestiture failures in the future.
Keywords
Antitrust, mergers, remedies, divestiture, FTC, DOJ
Parties to a large merger or acquisition must devote time and attention to dozens of important con-
siderations from negotiating the key terms of the deal itself to securing shareholder approval, man-
aging public relations and press coverage, and planning for postclosing integration. For transactions
with an antitrust component, securing clearance from the Federal Trade Commission (the FTC) or the
Antitrust Division of the Department of Justice (the DOJ) either without conditions or with the smallest
possible remedy is an additional key step on the path to closing. One aspect of obtaining that approval
in transactions with a competitive overlap significant enough to warrant a remedy has become more
complex in recent years—namely, securing the relevant agency’s approval of a divestiture package
and the purchaser of that divestiture. Merger parties and prospective divestiture buyers must be attuned
to the agencies’ heightened sensitivity to buyer qualifications in order to maximize their chances of
* Cleary Gottlieb Steen & Hamilton LLP, Washington DC, USA
Corresponding Author:
Christopher A. Wetzel, Cleary Gottlieb Steen & Hamilton LLP, 2112 Pennsylvania Avenue NW, Washington DC, 20037, USA.
Email: cwetzel@cgsh.com

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The Antitrust Bulletin 64(3)
bucking the trends toward increased insistence on up-front buyers and longer merger review timelines
that have followed on the heels of prominent divestiture failures.
I. Background on U.S. Merger Remedies
With limited exceptions, the U.S. antitrust agencies review all transactions valued at or above an
annually adjusted threshold, pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976.1
The great majority of reportable transactions are approved after an initial 30-day waiting period, with
the agencies determining that a more extensive investigation into the competitive effects of the deal is
unnecessary.2 However, when the agency has significant questions about the competitive effects of the
transaction, it may extend the waiting period while it conducts a lengthier investigation, including
issuing an extensive request for additional information, documents, and data known as a “Second
Request.”3 If the agency concludes that the transaction would, in the absence of a remedy, be likely to
cause substantial harm to competition, the deal will not receive antitrust approval unless and until the
parties commit to a remedy designed to restore the competition that would otherwise be lost as a result
of the merger.4 This commitment takes the form of a consent decree settling the agency’s charges that
the transaction violates the antitrust laws.5
While settlement in the form of a consent decree is the most common outcome, parties sometimes
refuse to agree to a remedy as extensive as the agency believes necessary, and in other cases, an agency
concludes that no remedy exists that would fully restore competition. In such cases, the agency can file
a lawsuit seeking an injunction prohibiting the merger.6 It is not uncommon for merger parties to
1. See 15 U.S.C. § 18a(a). The notification threshold, originally set at $50 million, was most recently raised to $90 million. See
Press Release, FTC, FTC Announces Update of Size of Transaction Thresholds for Premerger Notification Filings and
Interlocking Directorates (Feb. 15, 2019).
2. The agencies have typically received between 1,300 and 1,800 HSR filings per year over the last decade, with a high of 2,052
in 2007 and a low of 716 in 2009. See FTC BUREAU OF COMPETITION & U.S. DEP’T OF JUSTICE ANTITRUST DIV., HART-SCOTT-
RODINO ANNUAL REPORT, FISCAL YEAR 2017 (2018) Appendix B. In each fiscal year from 2008 to 2017, the agencies cleared
more than 95% of transactions without a Second Request. Id. at 6. While such actions are much rarer, the agencies can and do
challenge nonreportable transactions, even if already consummated. See, e.g., Complaint, Otto Bock Healthcare North
America, Inc., Docket No. 9378 (Dec. 20, 2017) (FTC example); Complaint, United States v. Transdigm Group, Inc., No.
1:17-cv-02735 (D.D.C. Dec. 21, 2017) (DOJ example). Moreover, in an even less common move, the DOJ recently pursued a
postclosing investigation of a transaction that had been reported pursuant to the HSR Act but which did not receive a Second
Request. See Complaint, United States v. Parker-Hannifin Corp., Case No. 1:17-cv-01354-UNA (D. Del. Sept. 26, 2017).
3. Pursuant to 15 U.S.C. § 18a(e), the initial 30-day waiting period may be extended until 30 days after the parties comply with
the Second Request. As a practical matter, parties frequently enter timing agreements with the agency that permit the agency
a longer period of time to complete its investigation after Second Request compliance.
4. The Horizontal Merger Guidelines published jointly by the FTC and DOJ set forth the agencies’ approach to evaluating
horizontal mergers and provide useful guidance about when the agencies are likely to conclude that a merger may
substantially harm competition in the absence of a remedy. The most recent iteration of the Guidelines, published in
2010 (hereinafter “Horizontal Merger Guidelines”), is available at https://www.ftc.gov/sites/default/files/attachments/
merger-review/100819hmg.pdf.
5. Specifically, the agency’s complaint generally charges that the deal violates Section 7 of the Clayton Act, which prohibits
acquisitions where “the effect of such acquisition may be substantially to lessen competition, or to tend to create a
monopoly.” 15 U.S.C. § 18. See, e.g., Complaint, Emerson Electric Co. and Pentair PLC, Docket No. C-4615 (Apr. 27,
2017) (FTC example); Complaint, United States v. Danone S.A. and the White Wave Foods Co., Case No. 1:17-cv-00592
(Apr. 3, 2017) (DOJ example).
6. See U.S. DEP’T OF JUSTICE ANTITRUST DIV., ANTITRUST DIV. POLICY GUIDE TO MERGER REMEDIES 3 (2011) (hereinafter “2011
DOJ Remedies Guide”) (“Where a remedy that would effectively preserve competition is unavailable, the [Antitrust]
Division will seek to block the merger.”). For instance, an agency may conclude that no prospective divestiture buyer
would have the same ability and incentives to compete aggressively as one of the pre-merger parties. See, e.g., Complaint,
United States v. Halliburton Co., No. 1:16-cv-00233-UNA (D. Del. Apr. 6, 2016) (hereinafter “Halliburton Complaint”).
While the Division announced its withdrawal of the 2011 remedies guide in September 2018 and reinstatement of its earlier

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abandon a transaction in the face of an agency suit to block the deal rather than pursue litigation
through a trial decision.7 The agencies have a strong recent track record of securing injunctions in
litigated cases,8 but persuading a court that an agency’s predictions of competitive harm are flawed is
not an impossible task.9 Litigation is typically the last resort after the parties have been unable to
persuade the agency either (1) that their proposed remedy is sufficient or (2) that no remedy is
necessary.10 As former FTC Bureau of Competition Director Deborah Feinstein put it, “litigation
typically occurs in the merger context where the only viable remedy [in the agency’s eyes] involves
all or nearly all of what the buyer hoped to obtain through the deal.”11
Merger remedies are typically classified as structural or behavioral. A structural remedy prevents
harm by altering the market structure that the transaction would create, restoring the competitive
conditions to the pre-deal status quo. It thus seeks to prevent anticompetitive conduct by removing
firms’ ability and incentives to engage in that conduct.12 By contrast, behavioral remedies directly
2004 guide while it assess its remedies policy, the 2004 guide is consistent with this approach. See U.S. DEP’T OF JUSTICE
ANTITRUST DIV., ANTITRUST DIV. POLICY GUIDE TO MERGER REMEDIES 14-15 (2004) (hereinafter “2004 DOJ Remedies Guide”)
(“blocking the entire transaction rather than accepting a...