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Unpacking divestiture packages in antitrust case settlements

Editor’s note: The Federal Trade Commission Bureau of Competition’s Angelike Andrinopoulos Mina sheds light on a review and order process the cement and concrete industry observed with the 2015-16 sale of Lafarge North America, Holcim (US), Essroc Cement and Lehigh Portland Cement assets attending the Lafarge Group + Holcim Ltd. and HeidelbergCement AG + Italcementi SpA mergers.

Crafting effective merger remedies is one of the Federal Trade Commission’s most important tasks. Done well, a divestiture prevents the competitive harm likely to result from a proposed merger and ensures that competition remains as robust as it was premerger. Once FTC Competition Bureau staff has identified a proposed or consummated merger’s likely market harm and parties express interest in avoiding litigation by agreeing to a settlement, attention turns to devising a divestiture remedy. Negotiating such a measure is an iterative process generally requiring significant revisions and additions or subtractions to various documents, including the divestiture agreement; transition services and supply agreements; and, the Commission’s draft decision and order. Parties should be aware of the significant risks and downsides to presenting a signed divestiture agreement to the Bureau as a fait accompli without having fully discussed it with staff.

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 package. Understanding divestiture scope 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 Competition 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.