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DOJ To Merging Parties: The Time Of “Underenforcement” Is Over; Fix-It-First Or Risk Being Challenged – Antitrust, EU Competition



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WHAT HAPPENED

During a conference last week, Ryan Danks, Director of Civil
Enforcement at the US Department of Justice’s Antitrust
Division (DOJ), suggested that merging parties—not the
antitrust enforcement agencies—should devise fixes for
allegedly anticompetitive transactions.

Danks stated “that something is broken about the way that
the antitrust community talks about remedies in the context of
mergers, where parties will bring in a three-to-two or
four-to-three or even a two-to-one [transactions] and say ‘now
we want you, government, to work with us to figure out how to fix
this’ . . . that’s not our job. Our job is to maintain
competition.”

Danks added that merging parties bear the responsibility for
remedying their anticompetitive transactions and have more
information on the businesses, allowing them to formulate strong
solutions. Such “fix-it-first” approaches may allow
merging parties to complete their transactions quicker, avoiding
lengthy merger reviews and consent decree negotiations.

Danks also suggested that “the simplest remedy . . . is to
just stop an anticompetitive transaction from occurring,”
strongly hinting that today’s DOJ would rather challenge an
entire transaction than work with the parties on devising a remedy
to address specific competitive concerns in limited product or
geographic markets.

Jonathan Kanter, Assistant Attorney General for the Antitrust
Division, conveyed similar views in two speeches last week, making
it clear that merger enforcement at the DOJ will become even more
vigorous.

On September 13, 2022, Kanter:

  • Warned that “[c]ompanies considering mergers that may harm
    competition should know that the Antitrust Division will not back
    down from a fight so long as that threat remains.”

  • Emphasized that the Clayton Act’s “expansive
    definition of antitrust liability” requires the government
    only to prove that a transaction’s effect “may be
    substantially to lessen competition.” According to Kanter,
    antitrust agencies have, for too long, “underenforced a
    statute that was meant to be prophylactic” by focusing on
    concrete evidence of a merger’s effect on prices.

On September 16, 2022, Kanter said that antitrust
enforcers “can no longer be so cautious to avoid
overenforcement that [they] intentionally
underenforce the law.”

Moving away from negotiating settlements that allow transactions
to proceed while resolving anticompetitive issues is part of a
trend of dramatic policy and procedural changes at both the DOJ and
Federal Trade Commission (FTC) designed to discourage mergers and
acquisitions (M&A), such as:

  • Suspending early termination of the Hart-Scott-Rodino Act (HSR)
    waiting period for transactions that do not raise competitive
    issues

  • Sending merging parties “close at your own risk”
    letters, informing the parties that antitrust investigations are
    ongoing despite expiration of the HSR waiting period

  • Insisting on inclusion of prior approval/prior notice
    provisions in all merger settlements

  • Including new topics, such as the impact on labor and
    environment, in Second Requests and adding additional hurdles to
    modifying Second Requests.

WHAT THIS MEANS FOR MERGING PARTIES

Merging parties should increasingly consider resolving likely
competitive issues with their transaction before the
antitrust enforcement agencies raise concerns. To do so, parties
and counsel need to perform a thorough assessment of the
competitive impacts of their deal. As part of this, they should
consider worst realistic case scenario planning to understand the
areas in which the DOJ, FTC and state Attorneys General are likely
to conclude that the transaction is anticompetitive when they
conduct their investigation, including reviewing company documents
and interviewing customers and competitors. A
“fix-it-first” solution likely will need to resolve all
problematic issues. Such “fix-it-first” approaches can be
approached by:

  • Structuring the transaction to exclude a sale of the
    problematic assets

  • Eliminating any problematic overlaps (g., by divesting
    certain competing assets before making an HSR filing)

  • Filing an HSR on the original transaction and then offering to
    withdraw filings and re-file the transaction after entering into
    private agreements, outside of a consent order process, thus
    resolving the agency’s concerns.

These approaches offer both potential benefits and drawbacks to
merging parties.

By resolving likely competitive issues outside the consent order
process before the HSR filing, merging parties can potentially
avoid any significant DOJ or FTC review and speed their path to
closing. However, if the structural fix is not sufficient to
eliminate agency concerns, the parties may be forced to address
those concerns with further steps. Acquisition agreements should
leave sufficient time to allow for these various steps, including
finding a buyer for the problematic assets.

Whether truly fixing-it-first or resolving antitrust agency
concerns outside of a formal consent process, the merging parties
can potentially avoid the implementation of onerous consent decree
provisions (such as those requiring the merging parties to provide
significant assistance beyond typical market terms to divestiture
buyers) or provisions that limit the parties’ freedom of action
related to future transactions (such as requiring agency prior
notice and/or prior approval). Further, handling these issues
outside the formal consent decree process can take place much
quicker while also avoiding public comment and/or judicial review,
which are part of the consent order process.

However, there is no guarantee that the antitrust enforcement
agencies will find an executed or proposed fix sufficient to
resolve competitive concerns. Merging parties may still spend
several months negotiating a fix with a third party, only for the
DOJ or the FTC to find the proposed divestiture insufficient or the
divestiture buyer unqualified to replace competition. Further,
merging parties may lose substantial timing leverage with the
antitrust agencies by resolving competitive issues outside the
consent decree process. The antitrust agencies typically have
between 30 to 120 days after the parties’ compliance with a
Second Request (depending on whether a timing agreement was entered
into) to decide whether to challenge the transaction. If merging
parties attempt to resolve likely competitive issues outside the
consent decree process, the antitrust agencies are not subject to
any similar timing pressure.

In all, the historic use of the consent agreement process was a
tried-and-true means to resolving potential problems with mergers
in a constructive manner between businesses and the government. The
suggestion from the DOJ to resolve these concerns outside of that
practice is another step by antitrust enforcers to add uncertainty
and risk for parties seeking to merge while understanding that a
fix is needed to gain clearance. The message from the DOJ is to fix
it first yourself—and fix it sufficiently—or risk being
taken to court.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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