April 11, 2022

Antitrust: Regulators More Inflexible On Remedies

This Sidley memo (p. 7) discusses how antitrust regulators’ increasingly hardline approach to remedies is making it increasingly difficult to resolve antitrust issues associated with M&A transactions. Here’s the intro:

Since the implementation in 1978 of the Hart-Scott-Rodino Act (HSR Act), which requires the prior notification of most transactions above a certain size (currently $101 million), parties to transactions that raise serious antitrust issues have often sought to negotiate remedies with the government that would resolve the antitrust issues but also allow the transaction to proceed. In any given year, two dozen or more transactions have been allowed to proceed after the parties entered into consent decrees that allowed the transaction to go forward on the condition that the parties take certain actions or restrict their conduct in a way that the government concluded would resolve its concerns.

The remedies the government seeks takes two possible forms: (1) structural relief, which usually requires the sale of the part of one of the businesses in the market that raises antitrust concerns or (2) behavioral (or conduct) relief, which involves the parties agreeing to certain conduct restrictions designed to prevent anticompetitive behavior by the combined company. In the United States there has always been a preference for structural remedies where possible; nonetheless, for many years the government has accepted behavioral remedies where structural remedies were not viable.

In the past decade the U.S. antitrust enforcement agencies — the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) — have increasingly and consistently made clear that they will accept behavioral remedies only in rare circumstances, which has limited parties’ options for resolving antitrust concerns where structural remedies are not available. And in the past year, senior enforcement officials at both agencies have more strongly objected to behavioral remedies and questioned whether even structural remedies are appropriate when the transaction raises particularly serious concerns or occurs in an already concentrated market. Parties to transactions that raise complex antitrust issues should consider at an early stage the regulatory risks posed by their potential transaction, and each party should try to limit or mitigate its own risk.

The memo reviews the history of antitrust remedies, the shift away from behavioral remedies, and the implications of the changing environment on parties trying to complete M&A transaction. It offers some advice on assessing and addressing the antitrust risks associated with a potential deal.  Among other things, the memo highlights the need to determine early in the deal process whether the proposed transaction raises significant antitrust risk, whether there is a meaningful risk of a challenge and, if so, whether there could be an economically viable settlement that would be accepted in the current environment.

John Jenkins