The Antitrust Division of the Department of Justice (“DOJ”) has released an updated Merger Remedies Manual (the “2020 Manual”), setting out the DOJ’s framework for approaching remedies designed to preserve competition in merger cases. The 2020 Manual emphasizes the DOJ’s preference for structural remedies in both horizontal and vertical merger cases, but provides a narrow pathway for behavioral remedies and hybrid approaches. The 2020 Manual also sets out the DOJ’s expectations for consent decrees to improve their effectiveness and the DOJ’s ability to enforce them.
- Key takeaways
- In depth
The 2020 Manual represents an explicit shift toward structural remedies and away from conduct remedies. The DOJ has long preferred structural remedies above conduct remedies, but previously had accepted conduct remedies as effective means to address specific competitive concerns, particularly in vertical mergers. The 2020 Manual further limits the circumstances where the DOJ will consider accepting a conduct remedy.
The Manual includes several key principles for an effective merger remedy—in both horizontal and vertical cases:
- Structural remedies are strongly preferred over conduct remedies, which will be accepted only in limited circumstances.
- Remedies must preserve competition, not favor any particular competitor.
- Avoid ongoing government oversight or involvement.
- Merging parties, not consumers, must assume any risk of an ineffective remedy.
- DOJ will continue to scrutinize closely the competency and financial wherewithal of prospective purchasers to enhance the likelihood of an effective remedy.
Structural v. Conduct Remedies
The DOJ recently repealed the prior version of the Manual (issued in 2011) and re-instated an earlier version (issued in 2004) in the interim. Assistant Attorney General Makan Delrahim of the DOJ’s Antitrust Division has been an outspoken critic of behavioral remedies, and the prior edition of the Manual was perceived as too permissive toward this sort of relief in merger cases.
The 2020 Manual emphasizes that “structural remedies are strongly preferred in horizontal and vertical merger cases because they are clean, certain, effective, and avoid ongoing government entanglement in the market.”
The 2020 Manual does, however, allow for “limited circumstances … when conduct remedies may be appropriate.” The two circumstances described are: (i) to facilitate structural relief (i.e., hybrid remedies); and (ii) stand-alone conduct relief.
Of the two circumstances, the DOJ clearly prefers conduct remedies that facilitate hybrid remedies. Here, the DOJ describes how temporary supply agreements, limitations on hiring or re-hiring personnel, and firewall provisions can be used to allow a structural remedy to come into full effect.
With respect to stand-alone conduct remedies, the 2020 Manual includes a four-part test, stating that such relief “is appropriate only when the parties prove: (i) a transaction generates significant efficiencies that cannot be achieved without the merger; (ii) a structural remedy is not possible; (iii) the conduct remedy will completely cure the anticompetitive harm; and (iv) the remedy can be enforced effectively.” Here, the DOJ focuses on whether any structural remedy would come at the cost of significant and cognizable efficiencies, and the potential cost of monitoring and enforcing a conduct remedy.
Consent Decree Provisions
The 2020 Manual also gives significant attention to consent decrees, stating that merger remedies are effective only when properly implemented. The DOJ sets out in the 2020 Manual the importance of certain standard consent provisions that are designed to ensure proper implementation, including provisions governing the time by which the remedy must be fulfilled, those preventing the dissipation of assets before the sale, and those necessary to ensure that the remedy effectively preserves competition in the relevant market after the sale is complete.
Relatedly, in late August, the DOJ announced that it would create a new office focused on enforcement and compliance with consent decree provisions.
The 2020 Manual reflects a preference for the parties to identify a buyer upfront—i.e., prior to finalizing the consent order. In particular, this preference prevails when the divestiture consists primarily of intangible property, does not consist of a stand-alone business, or when identifying an acceptable buyer may be a challenge. The DOJ will closely scrutinize any prospective divestiture buyer to ensure that they possess the requisite competence and financial wherewithal to compete successfully in the market.
Companies pursuing strategic combinations that may create competitive concerns should consider early in the process how to structure potential remedies consistent with DOJ’s new guidance.