The Federal Trade Commission (FTC) recently announced that it is seeking public comments on a planned study to assess the effectiveness of divestiture remedies in mergers. This review would update and expand a divestiture study published in 1999.
According to FTC Chairwoman Edith Ramirez, “Successful divestitures and other forms of relief are central to the Commission’s merger enforcement efforts. Building on prior Commission efforts, the proposed study seeks to provide valuable information to ensure that our remedies continue achieving their primary goal — maintaining competition in the affected markets.”
The original study closely examined 35 consent orders issued by the FTC over a four-year period, and included interviews with several dozen buyers of divested assets. The study resulted in several modifications to the FTC's divestiture process that have not been assessed since its release — including shortening the divestiture period, more frequently and consistently requiring an up-front buyer, and more frequently using monitors, especially in the technology and pharmaceutical industries.
In the new study, the FTC proposes to review nearly 100 consent orders issued between 2006 and 2012, with information-gathering approaches varying based on the industry. For the majority of industries, the FTC intends to interview the buyers of divested assets along with two competitors and two customers on average in each affected market. The interviews will be voluntary, though the FTC notes that it will rely on compulsory process if necessary.
Key topics the FTC plans to address with buyers are:
- Whether the increased use of up-front buyers hindered the buyer’s ability to conduct adequate due diligence.
- Whether shortening the divestiture period had any adverse effect on the buyers or the process.
- Whether the staff’s review of buyers and monitors was inadequate.
- Whether the orders effectively defined the assets of an autonomous business (when that was the purpose).
- Whether assets outside of the relevant market were properly included in the divestiture package when necessary.
- Whether the orders effectively required sufficient technical assistance or other nurturing provisions when necessary.
- Whether monitors have provided sufficient oversight of the process and divested assets.
- Whether the respondent impeded the buyer’s ability to compete in the market after the divestiture.
Interviews with competitors and customers will address additional issues:
- Whether the buyer competed in a manner that was as effective as the previous owner of the divested assets.
- Whether any other significant changes took place in the market after the remedy was implemented (e.g., entry, exit, or other merger).
- The interviewee’s views on how the merger would have affected the competitive environment absent the remedy.
- The interviewee’s views about the market’s competitiveness before and after the acquisition and remedy.
The FTC will also require buyers and significant competitors to file reports including annual unit and dollar sales data for the six-year period surrounding the divestiture to supplement the interviews.
For other industries where the FTC has special expertise in crafting remedies — including supermarkets, drug stores, funeral homes, and hospitals and other clinics — it will issue questionnaires to buyers rather than conduct interviews. And for divestitures in the pharmaceutical industry, the FTC will rely on information it already possesses from periodic reporting required in the consent orders, along with publicly available information, rather than conducting additional interviews.
The FTC requests public comment on the usefulness and necessity of the study, ways to enhance the quality, utility, and clarity of the information to be collected, and ways to minimize the burden of the collection of information. Comments can be submitted online or by paper and will be made publicly available (though commenters can request confidential treatment). For additional information or assistance in preparing comments to the FTC, please contact Logan, Leigh, or Robert.