Divestitures have long been used to address regulators’ antitrust concerns. Last month, the FTC’s Bureau of Competition offered up new guidance on what the agency expects from companies considering divestitures – and how to expedite the vetting process. Here’s an excerpt:
Before putting pen to paper, parties should discuss with Bureau staff what assets, rights, and personnel should be included in the divestiture package. For instance, assets outside the market of concern may be necessary for the divested business to be competitive and viable, and may need to be included in the divestiture package.
Understanding the scope of the divestiture package is a necessary prerequisite to an effective sales process, as it affects which buyers are likely to be acceptable. The acceptability of a divestiture package could vary depending on the proposed buyer. Different buyers may need more or less or different divestiture packages to be a viable competitor post-order. Proposed buyers with experience in the business – but not presently competing in the affected market – also will typically result in a shorter vetting process. Buyers with experience in adjacent geographies or complementary products or with experience selling other products to the same customer base may be good candidates. Buyers that do not have experience in the business or are purely financial purchasers will be subject to more significant scrutiny before the Bureau will be able to recommend them to the Commission.
The Bureau’s Compliance Division is experienced in vetting divestiture packages and buyers. Each divestiture order is designed to remedy the particular risk to competition created by the merger. Rather than expediting an approvable outcome, parties who skip the preliminary discussions and present signed documents may complicate staff’s analysis of the parties’ proposal and prolong, rather than shorten, the vetting process. Additionally, the Bureau may insist on revisions to the executed agreements or the scope of the proposed divestiture, and may reject the proposal completely. For this reason, it is generally much easier and more efficient to negotiate with draft documents than signed, “final” deal documents that will likely need to be modified and amended.
The FTC’s guidance notes that it has recently added resources to help guide both divesting companies and potential buyers of divested assets through the process & provide advice on what terms the FTC is likely to find acceptable in a settlement.
– John Jenkins