Scepticism over remedies results in rejected behavioural commitments and bolstered conditions
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Certain antitrust authorities are increasingly sceptical about whether remedies can effectively address concerns in a problematic transaction. This has led to a reluctance to accept behavioural commitments in certain jurisdictions and the imposition of measures to safeguard structural divestments, all with the aim of mitigating implementation risk. In addition, particularly in the U.S., even structural remedies have faced increased scepticism.
However, this has not (yet) resulted in an overall decrease in the number of conditional clearances globally. Excluding South African remedies from the data (where the authority’s concerns increasingly focus on public interest alongside antitrust issues), the number of remedies cases in 2022 (94) remains broadly in line with 2021 (91).
U.S. Department of Justice (DOJ) Antitrust Division head Jonathan Kanter has been a frontrunner in questioning the effectiveness of remedies. Early last year, he expressed his concern that “merger remedies short of blocking a transaction too often miss the mark”.
This has played out in practice. The DOJ has not agreed to a single merger remedy since Kanter took office in late 2021, instead choosing to challenge more deals. U.S. consent decrees dropped by 58% in 2022, from 19 to eight, and all eight were agreed by the Federal Trade Commission (FTC).
In contrast, in the UK we saw a more than four-fold increase in remedies cases in 2022. Combined with an uptick in prohibited and abandoned deals, this shows the Competition and Market Authority (CMA)’s overall willingness to aggressively intervene in M&A. However, persuading the CMA to accept remedies can be an onerous task. As in the U.S., there were instances of the CMA rejecting remedies in favour of prohibition. The same was true of the European Commission (EC).
If antitrust authorities continue to take a hard line approach to remedies, parties attempting to obtain merger control approvals for deals that raise antitrust issues will face an increasingly uphill battle. Convincing certain authorities to accept particular types of remedy, eg behavioural commitments and/or “mix and match” solutions, will be especially challenging.
Behavioural commitments out of favour in key jurisdictions
Many antitrust authorities continue to voice their strong preference for structural divestments over behavioural commitments. Behavioural remedies were rejected in several notable cases in 2022, including the EC’s review of Illumina/GRAIL, which the EC went on to block.
Executive Vice-President Margrethe Vestager says the EC is looking for “clean slate” remedies, by which she means stand-alone divestitures. She says this avoids the need for long-term monitoring, which is resource intensive and comes with increased risk of regulatory avoidance over time. U.S., UK, Australian and German authorities are all taking a similar stance.
It is therefore surprising that the proportion of conditional deals cleared on the basis of behavioural commitments did not decline in 2022 – in fact it increased slightly from 22% to 23%. However, looking at this statistic over the past four years, the proportion of behavioural-only remedies packages has dropped by nearly 40%.
At EU level, the EC accepted behavioural remedies in only one case out of 12 in 2022. In the UK it was one in 18. There were no behavioural remedies accepted in the U.S. in 2022.
Despite this clear trend in the EU, UK, and U.S., a number of other jurisdictions remain willing to accept behavioural commitments. In China, all (five) remedies cases in 2022 involved a behavioural element. The same was true in several other jurisdictions, including France, Spain and South Korea. Common behavioural remedies included safeguards on information exchange, restrictions on price increases or supply reduction, interoperability requirements and prohibiting exclusivity clauses. In South Africa, remedies packages are often behavioural in nature with many comprising employment-related commitments.
Even in jurisdictions that have a strong preference against them, behavioural remedies may be the best solution in a particular case. Non-horizontal mergers are an obvious example. Indeed, Vestager has acknowledged that in some non-horizontal cases, especially in digital markets, structural remedies might not be appropriate to address concerns about interoperability or access.
Structural divestments must be clear-cut
While many antitrust authorities are alike in preferring structural remedies, they can have differing views on what an effective divestment package should look like. Certain authorities are taking a dim view of “mix-and match” divestments, comprising assets from both acquirer and target.
The UK CMA appears particularly unwilling to accept mix-and-match solutions. As mentioned in chapter 1, it blocked Cargotec/Konecranes after concluding that the process of carving out the proposed assets from each party and knitting them together would be too complex and risky. The DOJ and ACCC expressed similar concerns.
Meanwhile, the EC defended its decision to accept remedies in the case, saying that the package comprised the sale of “viable standalone businesses” and was supported by rivals and customers. It has since accepted remedies at phase 1 in ALD/Leaseplan consisting of the divestment of national leasing subsidiaries from each party to a suitable purchaser with the relevant financial resources, skills, motivation and experience to compete on a lasting basis.
Being aware of these differences in approach is crucial for merging parties when designing potential divestment packages, particularly where they plan to put forward a single set of “global” remedies as a solution for concerns cutting across several jurisdictions.
Upfront buyers/fix-it-first reduce implementation risk
Certain antitrust authorities continued to make use of upfront buyer or fix-it-first remedies in 2022. While upfront buyer/fix-it-first remedies as a proportion of total structural divestments stayed relatively steady in the EU last year, we saw an increase in both the UK and U.S.
This is further evidence of authorities’ eagerness to ensure that remedy packages are robust and implementation risk is minimised.
With the turbulent economic climate continuing into 2023, there is a potential scarcity of purchasers for divestment businesses. We may see upfront buyer and fix-it-first remedies used even more frequently in the coming months.
FTC uses remedy provisions to curb future acquisitions
Unlike the DOJ, the FTC has continued to negotiate remedies with parties.
However, last year it made the aggressive policy decision to reintroduce the “prior approval” mechanism in remedies cases. This requires the acquirer to obtain FTC approval before closing any future transaction in the markets where the FTC had concerns – or even in broader markets, depending on the circumstances – for a minimum of ten years.
Notably, this policy change coincides with recent comments by FTC leadership about concerns over private equity “roll-ups” in certain industries (see chapter 3 for more on this).