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A pair of settlements entered into by the FTC and DOJ over the past week indicate that antitrust regulators are more willing to accept structural remedies to resolve merger challenges than they were during the Biden administration.

On Monday, the DOJ announced that it had reached a settlement that would allow Keysight Technologies to move forward with its proposed acquisition of Spirent Communications.  The excerpt from the DOJ’s press release provides an overview of the reasons the government moved to block the deal and the terms of the settlement:

According to the complaint, Keysight and Spirent dominate the markets in the United States for high-speed ethernet testing, network security testing, and RF channel emulators. High-tech companies – including chipset manufacturers, cloud computing providers, mobile network operators, government labs, and large enterprises – rely on the Defendants’ products to validate that their networks and network equipment are functional, secure, and integrating the latest technology.

The parties together account for 85% of the market for high-speed ethernet testing, more than 60% of the market for network security testing, and more than 50% of the market for RF channel emulators. Keysight and Spirent are each other’s closest competitors in these markets and compete head-to-head to develop and sell this crucial test equipment. Without the proposed divestiture, Keysight’s acquisition of Spirent would likely result in higher prices, lower quality, and reduced innovation to the detriment of customers and American consumers.

The proposed settlement requires Keysight to divest Spirent’s high-speed ethernet testing, network security testing, and RF channel emulation businesses to Viavi, including all tangible and intangible assets necessary to produce and sell these products. Together, these three business lines account for about 40% of Spirent’s total revenues. Viavi is expected to hire certain key Spirent employees that today support the divested business lines.

This settlement came on the heels of the FTC’s decision last week to allow Synopsys to move forward with its acquisition of ANSYS under the terms of a proposed consent order requiring it to divest certain product lines. That settlement was accompanied by a statement from FTC Chair Andrew Ferguson.   This excerpt from a Simpson Thacher memo summarizes Chair Ferguson’s comments about the agency’s willingness to settle and the kind of structural remedies it expects to require companies to commit to:

– Settlements Are Back. In Chairman Ferguson’s Statement, he emphasizes that part of the settlement decision-making process under the new administration will involve declining to bring lawsuits to conserve agency resources if a settlement can preserve competition. “[S]ettlement maximizes the Commission’s finite enforcement resources. Antitrust litigation is expensive.”

– Robust Structural Remedies Remain Preferred. Chairman Ferguson also cautioned that behavioral remedies are disfavored and should be treated with “substantial caution.” The Statement explains that structural remedies should typically involve “the sale of a standalone or discrete business, or something very close to it, along with all tangible and intangible assets necessary (1) to make that line of business viable, (2) to give the divestiture buyer the incentive and ability to compete vigorously against the merged firm, and (3) to eliminate to the extent possible any ongoing entanglements between the divested business and the merged firm.” Further, the FTC must be confident that the divestiture buyer has the “resources and experience necessary to make that standalone business competitive in the market.” Chairman Ferguson’s Statement explains that unless these conditions are met, the Commission should proceed to litigation.

The willingness of antitrust regulators to accept structural settlements should come as good news to dealmakers, since it represents a departure from the hard-line approach taken by them during the Biden administration.  However, regulators have made it clear that any structural remedies are going have to be quite robust before the DOJ or FTC will sign off on them.  Chairman Ferguson’s comments laid out the FTC’s position, while the DOJ’s Antitrust Chief Gail Slater offered a more colorful summary of the Justice Dept’s bottom line when she commented that the DOJ isn’t interested in “accepting . . . bull**** consent decrees.”

– John Jenkins