This chapter examines the Merger Remedies Study's main findings, and the extent to which the EU's recent conditional clearance decisions already reflect its recommendations. It offers comparisons with the US approach where possible, and summarises recent US developments.
William Baer and Luc Gyselen, Arnold & Porter LLP*
In October 2005, the Directorate-General for Competition (DG COMP) of the European Commission (Commission) produced a study of conditions imposed in merger clearance decisions, the Merger Remedies Study (Remedies Study). This is the most recent attempt by a competition authority to examine the effectiveness of merger remedies. This study reviewed all conditional merger clearance decisions from the period 1996 to 2000. The text of this study can be found at http://ec.europa.eu/comm/competition/mergers/legislation/remedies_study.pdf. It will form the basis for reform of the following documents (paragraph 286, Commission Report on Competition Policy 2005):
Notice on remedies acceptable under Regulation (EEC) No. 4064/89 and Regulation (EC) No. 447/98 (OJ 2001 C68/03) (Merger Remedies Notice).
Standard models and guidelines:
the standard model for commitments;
the standard model for the mandate under which trustees that monitor structural remedies are appointed; and
the best practice guidelines.
The current text of these documents can be found at:http://ec.europa.eu/comm/competition/mergers/legislation/notices_on_substance.html
The US anti-trust enforcement authorities (the Federal Trade Commission (FTC) and the Department of Justice's Antitrust Division (DoJ)) have also examined the issue of remedies. The FTC produced an earlier counterpart to the Remedies Study, the Divestiture Study of divestiture orders and the divestiture process from 1990-1994 (Divestiture Study) (found at www.ftc.gov/os/1999/08/divestiture.pdf)). This also resulted in proposals for reform.
When read together with this study and other policy documents, the Remedies Study reinforces the sense of convergence between the EU and US approaches to merger remedies. It also adds to the number of significant recommendations for improvement of merger remedies in the EU and US.
This chapter examines the Remedies Study's main findings, and the extent to which the EU's recent conditional clearance decisions already reflect its recommendations. It offers comparisons with the US approach where possible, and summarises recent US developments.
This chapter focuses mainly on the following issues:
Background - the approach of the EU and US to address competition problems identified in mergers by remedies.
Structural remedies (that is, the divestiture of business).
Behavioural remedies (for example, access to infrastructure, technology or intellectual property rights (IPR) or termination of exclusive supply or distribution agreements).
Convergence - results of remedies and anticipated future developments.
The chapter also considers the recent controversy in the US over the role the courts play in reviewing consent decrees entered into by a merging party with the DoJ (see box, Recent US developments âˆ' the role of the courts in reviewing the Department of Justice's consent decrees).
Both the Commission and the US authorities possess similar authority to address competition problems with merger remedies.
Commission merger investigations consist of two phases: Phase II is used when, at the end of Phase I, there are serious doubts as to the compatibility of a notified concentration with the common market. If the Commission declares a concentration compatible with the common market in either Phase I or Phase II, it can attach conditions and obligations to its decision (Articles 6(2) and 8(2), Regulation (EC) No. 139/2004 on the control of concentrations between undertakings (Merger Regulation)). If the parties do not fulfil the conditions, the Commission's clearance decision is automatically void, but if they fail to comply with the obligations, the decision remains valid until the Commission revokes it.
Certain concentrations must be notified to the DoJ and the FTC under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. Â§ 18a). The DoJ and the FTC can also attach conditions to approval of a merger. The aim of such conditions is to preserve and restore the state of competition as it existed but for the proposed transaction. The DoJ and the FTC apply the same analytical approach in merger review, but have a different approach to a firm's divestiture of assets. The FTC prefers that an acquiring company find an acceptable buyer for any assets it proposes to divest and execute an acceptable agreement with the buyer before it accepts the proposed consent order. The DoJ also attempts to minimise risk by requiring parties to "fix it first" by making privately negotiated structural changes that lessen a threat to competition, often avoiding the need to enter into a consent decree. Unlike the FTC, the DoJ may allow a buyer and divestiture to be identified after a consent decree is in place, although it will insist on approving the buyer and may enter a hold separate order (for the divested assets to be held separate and maintained for a certain period) and appoint a monitoring trustee to monitor the preservation of the assets before they are sold
There is a possibility that a federal court may review or revise the DoJ's proposed remedies set out in a consent decree (see box, Recent US developments âˆ' the role of the courts in reviewing the Department of Justice's consent decrees).
The Commission prefers structural to behavioural remedies. Structural remedies are of immediate and permanent effect, while behavioural remedies usually only operate for a fixed period of time. Following the judgment of the European Court of Justice (ECJ) in Gencor v Commission (Case T-102/96)  ECR II-753, the Merger Remedies Notice expressed a preference for structural commitments (such as the commitment to sell a subsidiary) because (Introductory recital 9, Merger Remedies Notice):
They prevent the merger from substantially lessening competition.
Do not require medium or long-term monitoring measures.
The FTC and the DoJ also preferred structural to behavioural remedies in their most recent statements:
Statement of the FTC's Bureau of Competition on Negotiating Merger Remedies 2003 (FTC Statement) (available at www.ftc.gov/bc/bestpractices/bestpractices030401.htm).
DoJ Policy Guide to Merger Remedies 2004 (DoJ Policy Guide) (available at www.usdoj.gov/atr/public/guidelines/205108.pdf).
According to the DoJ Policy Guide structural remedies are relatively clean and certain, generally avoid costly government entanglement in the market, and are more difficult to circumvent than behavioural remedies (page 8, DoJ Policy Guide).
In this section, the following matters are considered:
An overview of divestiture issues.
How to design the divestiture.
How to implement the divestiture.
In the EU, a divestiture is seen as the most effective way (apart from prohibition) to restore effective competition in the common market when a proposed merger significantly impedes effective competition (paragraph 13, Merger Remedies Notice). It can:
Create the conditions for the emergence of a new competitive entity.
Strengthen existing competitors.
The divestiture must concern a "viable" business that can compete effectively and independently of the merging parties, and be operated by a suitable buyer that has the capacity and incentive to compete effectively with the merged entity (paragraphs 14 and 19, Merger Remedies Notice) (see below, Designing the divestiture: Suitable buyer). The Commission usually appoints a monitoring trustee, initially to oversee the committing party's search for a suitable buyer and later on to act as divestiture trustee charged with the sale of the business (see below, Implementing the divestiture: The monitoring trustee).
Both the US authorities and the Commission consider that the viability of the divested business depends on the:
Scope of the divestiture (see below, Designing the divestiture: Scope of the divestiture).
The successful preservation of the business before its actual transfer (often under the supervision of a hold-separate trustee (paragraphs 16 to 18, 46 to 48 and 50 to 52, Merger Remedies Notice)) (see below, Implementing the divestiture: Interim preservation period).
There may be a risk that the divestiture may fail because of third parties' pre-emption rights or uncertainty as to the transferability of key contracts, IPRs or employees (see below, Designing the divestiture: Third parties). In that case, the Commission can ask the party to offer an alternative divestiture commitment, equally or better suited to restore effective competition (paragraphs 22 to 23, Merger Remedies Notice). This is known as a "crown jewel" (see below, Designing the divestiture: Crown jewels).
The various factors that need to be considered when designing and implementing a divestiture are now considered in more detail. The primary focus is on the EU, with references to US developments where appropriate.
The following matters require careful consideration:
Scope of the divested business. In the EU, the party offering the commitment must provide a precise and exhaustive description of the divested business, that includes all elements that are necessary for the business to act as a viable competitor on the markets (paragraph 46, Merger Remedies Notice and paragraph 4, standard model for divestiture commitments).
However, that description may be incomplete. The Commission has found that in 80% of the cases, the adequacy of the scope of the divestiture was an issue and, in 25% of the cases, it ultimately had an impact on the effectiveness of the remedy. In the Commission's view, therefore, there is potential for a number of improvements, and it plans to:
examine more closely the extent to which the viability of the divested business may suffer from its dependence (upstream or downstream) on parts of the retained business (see also Inco/Falconbridge (Case COMP/M.4000) and Johnson & Johnson/Guidant (Case COMP/M.3687));
systematically review the terms of ancillary transitional agreements, and not just the main sale and purchase agreement (pages 142 to 143, Remedies Study).
The FTC and DoJ also stress the importance of the scope of the divested assets in maximising the chances of success. For that reason, they prefer divesting an existing business entity (page 9, DoJ Policy Guide and page 10, FTC Statement). However, they differ on whether to include an upfront buyer (see below, Suitable buyer).
Third parties. Divestitures frequently require the consent of a third party (for example, in relation to a merging party's exit from, and the buyer's subsequent entry into a joint venture, or for the transfer of supply agreements or IPR licences to the buyer). However, neither the Commission nor the committing party can force a third party to give its consent, which has sometimes delayed implementation of the divestiture or led parties to offer an alternative remedy (see, for example, Linde/BOC (Case COMP/M.4141)). The DoJ has also recommended that a consent decree contain an alternative remedy to be implemented where the primary remedy depends on third-party consent and that consent is not obtained at the time the decree is entered (pages 38 to 39, DoJ Policy Guide).
For that reason, the Commission gives careful consideration to third party issues when designing the remedy, and requires the committing party to provide the relevant terms of agreements involving third parties so that it can better determine the risk of any delay. If the risk is too high, a crown jewel may be the only available alternative (pages 143 to 144, Remedies Study) (see below, Crown jewels).
Sometimes the third parties themselves become buyers of the divested business (Commission officials recently remarked in April 2006 that sales to joint venture partners had unexpected success, in spite of fears that these third parties would extract ever increasing concessions from the committing party).
Crown jewels. Where the committing party offers an alternative remedy or crown jewel it has an incentive to successfully implement its first choice remedy. However, parallel offers usually cause delays in the divestiture process as they force the parties to preserve and hold separate all assets in both the first choice and crown jewel alternatives for the duration of both divestiture periods. In those cases, the Commission observes that shorter divestiture periods should be considered (page 145, Remedies Study).
In some recent cases, the Commission has chosen the crown jewel where it is clear that it removes competition concerns, in contrast to the first choice remedy, which would "clearly not allow the Commission to clear the case" (Telefonica/O2 (COMP/M.4035); see also Linde/BOC (Comp/M.4141)). The problem, therefore, was that the first choice was ineffective, not that its implementation was "uncertain or difficult", which is the actual wording of the Merger Remedies Notice (paragraph 22, Merger Remedies Notice).
The FTC endorses the effectiveness of crown jewel provisions and recommends their inclusion in consent decrees (pages 31 to 32, Divestiture Study). However, the DoJ does not favour crown jewel provisions, because they (pages 36 to 37, DoJ Policy Guide):
generally represent acceptance of either:
less than effective relief at the beginning; or
more relief than is necessary to remedy the problem.
require acceptance of divestiture of assets after merger, which does not comply with the DoJ's policy of requiring a demonstration that a merger will not lessen competition before it takes place (see above, Background âˆ' the approach of the EU and US to merger remedies: Authority to impose remedies).
Carve out. When the committing party does not intend to sell an existing stand-alone business but only transfer a set of tangible and intangible assets (such as IT systems or IPRs), those assets must be carved out of the retained business and integrated into the existing business of the buyer so that a new stand-alone business emerges. This tends to be complex and time-consuming, which is why the Commission favours divestitures of businesses that are stand-alone from the outset. However, during the period covered by the Remedies Study, the Commission has accepted more carve outs (60% of the cases) than stand-alone divestitures (40% of the cases) (for example, Renolit/Solvay (Case COMP/M.3946)).
On the basis that neither the Merger Remedies Notice nor the standard model for commitments contain detailed provisions on the principles that should govern carve outs, the Commission intends to spell out those principles. In particular, it will provide more guidance to the trustees involved in the process (the hold-separate manager during the interim period and the monitoring trustee that oversees the divestiture itself (see below, Implementing the divestiture: The monitoring trustee) (pages 150 to 153, Remedies Study)).
The FTC recently ordered a complicated carve out in the case of the merger of Guidant and Boston Scientific (see In re Boston Scientific Corp., FTC Docket No. C-4164, Decision and Order (21 July 2006)). In that case, the FTC approved the company Abbott as a suitable buyer for the designer of cardiovascular medical products Guidant's carved out vascular business. However, it required that the assets be fully divested instead of the original plan for Boston Scientific to share Guidant's vascular IPRs with Abbott. The FTC did allow Boston Scientific to license back the vascular IPRs from Abbott, allowing the two companies to compete with the same technology in the stent market. Other features of the divestiture included the mandatory physical segregation of Guidant's facilities that housed the acquired pacemaker and the divested vascular businesses, as well as restrictions on the conduct of employees (relating to communications between employees associated with the vascular business and those associated with the pacemaker business).
Suitable buyer. The suitability of the buyer was an issue in around 50% of the cases considered in the Remedies Study, and in almost 10% of the cases, it either compromised or reduced the competitive strength of the divested business.
However, the characteristics of a suitable buyer are clear. It must (paragraphs 19 to 21 and 49, Merger Remedies Notice):
be independent from the merging parties;
have the capacity to maintain and develop the divested business as an active competitive force in the relevant market. This depends on the potential buyer's financial resources and proven expertise. The Remedies Study has shown that a financial buyer (that is, a venture capital or private equity business investing capital on behalf on passive investors) may lack expertise, while a small buyer may lack resources as well as expertise. However, the Commission has stated that the suitability of financial or small buyers must be examined on a case-by-case basis. It appears, for example, that the Commission may prefer a new entrant in markets which are being liberalised ( see T-Mobile/Tele-ring (Case COMP/M.3916));
have the incentive to maintain and develop the divested business as an active competitive force in the relevant market. To assess this, the Commission will consider the buyer's business plan and ask for the opinion of the monitoring trustee of that plan.
The Commission does not envisage specific improvements in this area, but will ensure that the buyer meets these requirements (pages 159 to 162, Remedies Study). All of its recent conditional clearance decisions now include standard wording setting out these requirements (see Renolit/Solvay (Case COMP/M.3946), and later decisions such as CVC/SLEC (Case COMP/M.4066) and Mittal/Arcelor (Case COMP/M.4137)).
In some cases, the viability of the business depends so much on the identity of suitable buyer that the Commission requires that the party offering the commitment enters into a binding agreement with an "upfront buyer" before the merger is cleared. Divestitures involving upfront buyers have been very rare in the past, and the Remedies Study only mentions one case. The time limits under which the Commission needs to conduct its merger review often make it practically impossible to work with upfront buyers (page 162, Remedies Study).
For the US authorities as well as the Commission, the suitability of the buyer depends on its capacity as well as incentive to make the divested business an active competitive force:
the FTC states that proposing divestment of assets (short of an independent, ongoing business) requires an upfront buyer (page 11, FTC Statement). Generally, the FTC routinely requires the identification of an upfront buyer, with over 60% of its consent decrees that require divestiture of assets over at least a three-year period needing an upfront buyer (the FTC prefers that an upfront buyer be found and an acceptable agreement entered into with that buyer before it accepts the proposed consent order). The FTC's Divestiture Study cites the buyer's knowledge and experience as a point of paramount importance in selecting a buyer (along with commitment and size) (page 34, Divestiture Study);
the DoJ states that appropriate buyers should be available if the DoJ has identified the appropriate assets to divest (the highest-bidding competitively acceptable party is usually the entity most capable of running the divested business) (page 30 note 42, DoJ Policy Guide). Generally, the DoJ Policy Guide suggests that the DoJ uses a less exacting standard than the FTC, although it does require three tests, which consider whether (page 32, DoJ Policy Guide):
divestiture to the proposed buyer will cause competitive harm;
the proposed buyer has an incentive to compete;
the buyer has sufficient knowledge and ability to run the divested business.
The following issues require consideration:
Interim preservation period. The business must be preserved until its actual transfer to the buyer. Planned investment programmes should not be abandoned and supplier and customer relations not neglected. The assets and employees to be allocated to the divested business must be held separate from the retained business, requiring that ring-fencing provisions are put in place and employees not solicited to return to the main business. Provisions for a hold-separate obligation, ring-fencing and non-solicitation are standard in conditional clearance decisions (for example, see Johnson & Johnson/Guidantand Mittal/Arcelor).
The Commission prefers to keep the interim period as short as possible, as delays increase the risk that the divested business loses its competitive edge before it has even started competing with the merged entity and other market players. Of relevance are hold-separate managers and monitoring trustees. As previously stated, the monitoring trustee usually monitors preservation and hold-separate obligations on the Commission's behalf. The hold-separate manager is responsible for carrying out, under the monitoring trustee's supervision, the operational or executive management of the divested business on a day-to-day basis, including the hold-separate obligations.
To save time, the hold-separate manager (which the Commission stated was beginning to emerge when the Remedies Study was started but which would have been beneficial in virtually all divestiture cases) and the monitoring trustee (whose appointment was already common practice) should be appointed as early as possible and should remain until well after the transfer is completed. The monitoring trustee should act on the basis of a detailed work plan, a code of conduct and implementation checklists (pages 145 to 146, Remedies Study). Recent conditional clearance decisions reflect that the Commission considers that hold-separate managers and monitoring trustees play a key role in overseeing the preservation of the divested business during the interim period before the actual sale (see below, The monitoring trustee).
The FTC and DoJ have differed in their approach to investing trustees with the power to manage a business during the interim preservation period:
the FTC agrees with the Commission that a hold-separate trustee (the equivalent of a monitoring trustee) is an effective way to ensure the competitive vitality of a divested business (page 19, FTC Statement);
the DoJ usually does not regard these trustees as effective and argues that they should only be used where there is an extraordinary risk that the value of the assets are threatened(pages 39 to 40, DoJ Policy Guide).
It recently diverged from its policy of not being favourable to operating trustees, in the merger of Mittal Steel Co NV and Arcelor SA, apparently finding that the unusual circumstances in which an operating trustee is required were present (United States v Mittal Steel Co NV, Competitive Impact Statement, at www.usdoj.gov/atr/cases/f217400/217491.htm). The DoJ ordered Arcelor to divest one of its North American steel companies, Dofasco Inc (on the assumption that it can be sold given the provisions of the foreign trust in which it is held). The DoJ required Mittal to appoint an operating trustee to preserve Dofasco's value while divestiture efforts are pending, giving it complete managerial responsibility for Dofasco and for overseeing compliance with the hold-separate order (United States v Mittal Steel Co NV, [Proposed] Hold Separate Stipulation and Order, available at http://188.8.131.52/atr/cases/f217400/217494.htm).
The divestiture process. DG COMP has become aware of the need to put in place a minimum standard for a proper divestiture procedure to avoid sellers influencing the buyer selection process for strategic reasons (for example, sellers may abuse a lack of transparency in the process to favour a weak buyer or organise very short due diligence procedures to restrict the number of potential buyers).
Therefore, DG COMP proposes to require sellers to provide full, frank and timely information in relation to the scope of the divested business, so that buyers can make informed decisions concerning the acquisition and future prospects of the divested business. This is now already standard practice; sellers must supply all the information necessary to enable the potential buyer to carry out a proper due diligence, such as (Johnson & Johnson/Guidant and Mittal/Arcelor):
informing the Commission and the monitoring trustee on the preparation of data room documentation and the due diligence procedure; and
submitting a copy of the information memorandum before sending the memorandum to potential buyers.
However, transparency has its limits. Sellers are entitled to protect their legitimate financial interests in obtaining a competitive price by keeping certain information confidential from candidate buyers, at least in initial phases of the divestiture process (for example, the scope of any crown jewel commitments) (pages 148 to 150, Remedies Study).
Once a suitable buyer has been found, the monitoring trustee acts as divestiture trustee and sells the business "at no minimum price and at such terms and conditions as it considers appropriate for an expedient sale" (paragraphs 9 to 11, Standard Model for the trustee's mandate).
The transfer of the business. The Commission has stated that the actual transfer of tangible and intangible assets to the buyer has often occurred long after the closing of the sale, especially in the case of carve-outs. The most difficult assets to transfer in a timely manner have been IPRs, customer records and employees.
The Commission therefore argues that the monitoring trustee's mandate should be extended beyond the date at which the sale of the divested business has been closed, so that the trustee can arrange for the divested business to be transferred in a timely manner. Several buyers have suggested that commitments should provide for a systematic verification of the transfer's completion at a pre-arranged later date (pages 153 to 154, Remedies Study).
The monitoring trustee. The Commission lists a number of practical recommendations concerning the trustee, including that (pages 158 to 159, Remedies Study):
his appointment must be timely;
his professional qualifications should include:
business and information management;
accounting expertise; and
knowledge of the industry.
an initial meeting should be set up, followed by regular follow-up meetings between the monitoring trustee and the Commission;
the trustee's mandate should cover:
the monitoring of the hold-separate activities during the interim period and the search for the potential buyer;
selling the business to that buyer; and
verifying that the actual transfer of the business takes place within a reasonable time after closing.
All conditional clearance decisions already follow these recommendations and contain a detailed list of the monitoring trustee's duties and obligations (in almost identical language) (for example, Johnson & Johnson/Guidant and Mittal/Arcelor).
The divestiture deadline. The Commission reports that a six-month deadline has usually been granted, but that in more cases (for example, carve outs, markets with just a few potential buyers, unresolved third party issues, the need to find a suitable new entrant), extensions of one or two months were granted once or several times. It believes that six-month deadlines generally prove sufficient for most commitments, and seem to support the current practice of initially agreeing to a tight deadline with the ability to extend time when good cause is shown (pages 162 to 163, Remedies Study).
The DoJ and the FTC differ on whether it is efficient to expend time and resources to find an upfront buyer before approval of a merger (see above, Background âˆ' the approach of the EU and US to merger remedies: Authority to impose remedies).
The Remedies Study has found that:
In some cases, parties offer a mix of structural and behavioural remedies (see, for example, Boston Scientific/Guidant (Case COMP/M.4076)).
In other cases, a divestiture was impossible, and to remedy the competition problem caused by the merger the Commission forced the merging parties to:
grant competitors access to infrastructure, technology or IPRs. Access to infrastructure proved unnecessary remedy in three out of the four cases, while access to technology or IPRs was only successful in a limited number of cases;
terminate exclusive supply agreements. This did not work, as the suppliers did not exploit the new sales opportunities.
In spite of this poor track record, however, behavioural remedies do remain an option in the EU. In two recent cases the Commission imposed behavioural remedies:
It required from the target company that it significantly reduce its co-operation with the leading player in the market (Amer/Salomon (Case COMP/M.3765)).
A subsidiary of the acquiring company had to withdraw from a close multilateral co-operation with market players that cumulatively held a substantial market share (TUI/CP Ships (Case COMP/M.3863)).
The Commission decides on a case-by-case basis whether behavioural remedies will be effective. Therefore, a remedy that consists of granting competitors access to infrastructure (typically in regulated sectors such as telecommunications and energy) will probably be reviewed some time (for example, one or two years) after implementation to check whether that remedy is still necessary (page 116, Remedies Study). (In regulated sectors, the Commission often requires a combination of structural and behavioural commitments (for example, Dong/Elsam/Energei E2 (Case COMP/M.3998) and E.ON/MOL (Case COMP/M.4076)).
With a remedy that consists of granting competitors access to technology and IPRs, the Commission (pages 120 and 165, Remedies Study):
Carefully examines the financial terms (in particular, the licensing fee).
Generally prefers non-exclusive licences, so that a sufficient number of potential licensees can be reached.
Ensures that the licences have a sufficiently broad field of use and duration.
(In relation to this, see for example Axalto/Gemplus (Case COMP/M/2998) and Boston Scientific/Guidant, where the Commission requested a limitation of the supply agreement of DES stents from Abbott to Boston Scientific and a modification in the remuneration mechanism of this supply agreement.)
In the US, conduct-based remedies are strongly disfavoured by the DoJ, which finds the necessary monitoring to be cumbersome and costly (page 22, DoJ Policy Guide) (see above, Background âˆ' the approach of the EU and US to merger remedies: Behavioural or structural remedies?). In rare cases, where implementation of structural remedies would diminish existing competitive efficiencies, the DoJ approves stand-alone conduct-based remedies such as firewalls, fair dealing provisions and transparency provisions (pages 22 to 24, DoJ Policy Guide). Both the FTC and the DoJ use conduct remedies where they help to perfect structural relief, for example, the Boston Scientific-Guidant merger, where conduct restrictions which are ancillary to divestiture (that is, restricting contact between employees of the divested and retained businesses that operate in a single workplace) supported the success of the structural remedy (pages 18 to 20, DoJ Policy Guide) (see above, Designing the divestiture: Carve out).
This chapter demonstrates that the US and EU approaches to merger remedies are remarkably convergent, both in terms of designing and implementing remedies, and in terms of their effectiveness:
In the Remedies Study, for the period 1996 to 2001 (page 165, Remedies Study):
57% of the remedies were found to be fully effective;
24% partially effective;
12% the outcome was unclear due to lack of data.
In the Divestiture Study, 75% of divestitures were found to be successful (page 9, Divestiture Study).
Commission officials involved in DG COMP's review of the Commission's documents and practice on merger remedies have stated that only a handful of remedies that were imposed in emerging markets were, with hindsight, probably superfluous. If anything, the Remedies Study has indicated that there had been too little intervention when considering the scope of the effective remedy. It can be expected, therefore, that the Commission will, in its review, attempt to remedy this lack of intervention, or at least enhance the effectiveness of the remedies offered.
*The authors thank their colleagues Marleen Van Kerckhove, Francesco Liberatore and Alexandra Maingard of Arnold & Porter LLP's Brussels office, and H Holden Brooks of the Washington office for their assistance in the preparation of this chapter.
When the Department of Justice's Antitrust Division (DoJ) is prepared to clear a merger, but wishes to make this merger conditional on the implementation of remedies, it enters into a consent decree with the merging parties.
However, a consent decree requires the approval of a federal court under the Tunney Act (15 U.S.C. Â§ 16 (2004)). The court shall consider the following factors in its review:
Duration of the remedies.
Alternative remedies considered by the DoJ.
The impact on the general public and those specifically affected by the decree.
Any other factors that affect the adequacy of the decree.
The court can do the following:
Order the production of additional information.
Appoint experts to assist.
Hear the arguments and expert evidence of third parties challenging the merger.
After this review the court may, of its own volition or at the urging of members of the public:
Decline to approve the consent decree.
Propose alternative remedies.
In 2004, the US Congress amended the Tunney Act. The most notable change was that the court "shall" rather than "may" take the list of factors into account when reviewing the consent decree (see above, The Tunney Act). The significance of this change is being debated in the context of the court review of the recent telecommunications mergers of:
SBC and AT&T.
MCI and Verizon.
In those cases, the DoJ entered into consent decrees with the parties in 2005 after requiring modest divestments of connectivity in individual office buildings. When reviewed by the US District Court for the District of Columbia in 2006, third-party challengers argued that the court had to make affirmative, independent findings of whether the mergers are in the public interest, and not merely review the issues identified in the complaint (as argued by the DoJ) (see United States v SBC Communications Inc and AT&T Corp, Civ No. 05-1202 (DDC) and United States v Verizon Communications Inc and MCI Inc, Civ. No. 05-1203 (DDC)). As of the law-stated date, the court was still reviewing the consent decrees.
Depending on how this issue is resolved, merger parties may be less confident that the courts will uphold consent decrees. Review and revision of these decrees by individual judges with differing perspectives may remove the consistency that results from the DoJ's consent decrees, and make it difficult to predict future developments in US merger remedies policy.