Expanding on the FTC's divestiture study in 1999, on 19 January 2017, the FTC issued its second report, The FTC’s Merger Remedies 2006-2012: A Report of the Bureaus of Competition and Economics. Recognizing that the efficacy of its remedies is critical to its mission, the key finding is that "the agency’s process for maintaining competition when companies merge is generally effective." The study is important in that:

  • It shows the FTC’s willingness to evaluate its own performance with respect to merger remedies, a practice which antitrust enforcement agencies in other jurisdictions have followed;
  • It demonstrates the FTC’s overall effectiveness in obtaining merger remedies that restore competition in the affected market; and
  • It suggests areas in which the FTC may improve and a roadmap for companies that are required to provide structural or non-structural relief to have their transaction approved.

The study examined 89 merger orders issued by the FTC between 2006 and 2012, including those requiring divestitures, as well as non-structural relief. A merger remedy was considered to be successful by the FTC staff if it maintained or restored competition in the relevant market. The FTC distinguished between success and qualified success, on the one hand, and failure, on the other hand.

  • For 50 of the orders — involving the broadest range of industries — the FTC used a case study method that relied on interviews of market participants and sales data. There were 46 horizontal mergers and 4 vertical mergers. Of the 46 horizontal mergers, 87% had structural relief and 13% had non-structural relief. All 4 of the vertical mergers were remedied with non-structural relief. More than 80% of these orders maintained or restored competition.
  • For another 15 orders involved industries with which the FTC is well familiar —supermarkets, drug stores, funeral homes, dialysis clinics, and other health care facilities — the FTC used responses to voluntary questionnaires sent to the buyers. The vast majority of the assets divested under those 15 orders are still operating in the relevant markets.
  • The final 24 orders reviewed involved the pharmaceutical industry, primarily manufacturers of prescription generic drugs, which were evaluated based on internal expertise, information, and data, as well as information obtained from publicly available sources. Pursuant to these orders, the majority of buyers that acquired products on the market at the time of the divestiture continued to sell those products. Additionally, all of the divested assets relating to products that were in development and not available on the market at the time of the divestiture were successfully transferred to the approved buyers.

Although defining the package of divestiture assets and selecting the buyer are the most critical elements of a divestiture remedy, the study identified other factors affecting outcome:

  • Ongoing Businesses. Reinforcing what the FTC and staff have long known, the study found that all divestitures of ongoing businesses succeeded, whether the divestiture was to an upfront buyer or a post-order buyer.
  • Selected Assets. Divestitures of limited packages of assets in horizontal, non-consummated mergers fared less well, but still achieved a success rate of approximately 70%. Divestitures of selected assets tended to succeed when buyers had similar existing operations, were knowledgeable about the relevant markets, and were familiar with customers.
  • Vertical Mergers. All remedies addressing vertical mergers succeeded.
  • Consummated Mergers. Merger remedies for consummated mergers, which involved both structural and non-structural relief and are often the most difficult to implement, fared less well with success rates of 66-78% depending on the applicable criteria.
  • Merger Process. Buyers of divested assets and occasionally other market participants discussed concerns that arose during the process. Some of the factors affecting outcome involved the implementation of the remedy, including the buyer’s ability to conduct adequate due diligence; the transfer and retention of customers; and the respondent’s obligation to provide supply, transition services, and employee access.
  • Hold Separate Orders. While the study confirmed the importance of hold separates, some market participants raised questions about the operation of the business during the hold separate period, claiming that the hold separate arrangement may have diminished the competitiveness of the business during this period.
  • Monitors. Like the 1999 Divestiture study, the study revealed that many buyers do not raise concerns with staff or monitors when they arise, which they should.
  • Transparency. Overall, the interviews revealed the need for greater transparency regarding the remedy process. Specifically, participants suggested that the FTC publicize the criteria for approving buyers, for requiring buyers upfront, and for approving monitors.

Based on these findings, the study concludes with a lengthy list of best practices in which the FTC may improve its merger remedies, which also serve as an indication of the requirements that must be fulfilled in order for a remedy to be acceptable to the FTC. This roadmap relates to the scope of the asset packages, including the transfer of back office services; review of the proposed buyer; implementation of the remedy, including due diligence and customer relations, transition services, supply agreements, and hold separate orders. There are separate requirements for merger remedies in the pharmaceutical industry, including, among other things, technology transfer and the use of a monitor.

The study also encouraged greater communication with the staff at every stage of the remedy process. A buyer, or any other affected party, should bring issues or concerns to the attention of the staff or the monitor as soon as they arise. The staff will remain in contact with buyers at least until the respondents have fully divested all required assets and have provided all required supply and transitional services.