Introduction

Senior officials at the US Department of Justice Antitrust Division (DOJ) and the US Federal Trade Commission (FTC) have made clear that they will not entertain or will sharply limit resolutions of merger investigations through consent decrees with remedies, preferring to challenge transactions outright. The agencies’ new positions on remedies have dramatically changed the US merger review landscape for transactions that potentially raise antitrust concerns, leading parties to such transactions to increasingly contemplate “fix-it-first” strategies. With fix-it-first, the parties modify the transaction to address antitrust concerns—typically by entering an agreement with a third party to sell divested assets—without entering a consent decree with the agency. The agency is then left with the choice of either clearing the transaction or litigating over the adequacy of the remedy (and sometimes over whether the transaction may lessen competition in the first place). 

We discuss below the background and implications of the agencies’ new positions and then the potential benefits and challenges of a fix-it-first strategy. Companies considering using this strategy should work closely with seasoned antitrust and deal counsel to carefully assess the potential benefits and risks of employing this approach in a particular transaction.

Background

The US antitrust agencies’ antagonism toward negotiated remedies in merger cases is a new phenomenon. Prior agency regimes scrutinized remedy proposals extremely closely to satisfy themselves that the remedy—e.g., the asset package and proposed buyer for a divestiture—would fully replicate the intensity of pre-transaction competition. The agency remedy review process often led to significant changes in the proposed remedy as a condition to clearing the transaction with a consent decree. Nevertheless, a large proportion of those transactions that the agencies concluded otherwise would violate the antitrust laws were cleared through a negotiated remedy embodied in a consent decree.

The antitrust agencies now have very different postures on merger remedies. In a January 2022 speech, Assistant Attorney General for DOJ’s Antitrust Division Jonathan Kanter said that he was “concerned that merger remedies short of blocking a transaction too often miss the mark.”¹ Kanter went on to say that “in my view, when the division concludes that a merger is likely to lessen competition, in most situations we should seek a simple injunction to block the transaction.”² DOJ has not entered a consent decree to resolve a merger investigation since Kanter’s speech almost 15 months ago.

FTC leaders have voiced similar views. In a June 2022 interview, FTC Chair Lina Khan said that the pattern of negotiating with merging parties to “fix” their transactions is “not work the agency should have to do. That’s something that really should be fixed on the front end by parties being on clear notice about what are lawful and unlawful deals.”³ Khan added, “We’re going to be focusing our resources on litigating, rather than on settling.”⁴ More recently, in February 2023, FTC Bureau of Competition Director Holly Vedova said that the FTC was moving “away from . . . remedies with ‘numerous, complicated, and long-standing entanglements.’”⁵ Vedova stated that “[b]ased on our own experience and study . . . [t]he Bureau of Competition will only recommend acceptance of divestitures that allow the buyer to operate the divested business on a standalone basis quickly, effectively, and independently, and with the same incentives and comparable resources as the original owner.”⁶ She said the Bureau of Competition “will no longer consider remedies where there is a heightened risk of failure. These include proposals of less than standalone business units, or where there are forward-looking entanglements between the buyer and seller, such as supply agreements, or where there is no strong independent buyer.”⁷

Although, unlike DOJ, the FTC does not appear to be entirely foreclosing the possibility of resolving merger investigations with consent decrees—indeed, the FTC has entered eight such consent decrees in the past 16 months—it is clearly articulating a more restrictive approach than past FTC regimes toward such resolutions. For instance, many merger cases have traditionally been resolved through divestitures of less than a standalone business. In a recent complaint challenging Intercontinental Exchange’s proposed acquisition of Black Knight, however, the FTC alleged that the merging parties’ proposed divestiture did not fix the acquisition’s anticompetitive effects because, among other things, the remedy failed “to transfer a standalone business” to the proposed divestiture buyer.⁸ In practice, if the FTC will not clear transactions with a consent decree based on a divestiture of less than a standalone business, there will be many circumstances in which the parties cannot practicably negotiate a consent decree, which will likely increase the number of FTC-reviewed transactions for which the parties will need to consider a fix-it-first remedy.

Implications of the New Remedy Policies

The antitrust agencies’ new approaches to remedies have important real-world implications for merging parties. Among other things, parties are increasingly contemplating fix-it-first strategies, which can involve divesting assets to an identified buyer with a negotiated transaction agreement during the agency’s review but could also involve consummating a transaction to address potential antitrust objections before submitting a Hart-Scott-Rodino notification. For example, Quikrete and Forterra entered a merger agreement in February 2021,⁹ and after receiving a DOJ second request, Forterra entered a series of divestiture agreements with third parties in late 2021 and early 2022 “[i]n order to address some of the divestitures anticipated to be required by the DOJ[.]”¹⁰ A year after signing their merger agreement, Quikrete and Forterra closed the transaction without a consent decree,¹¹ and DOJ has not challenged the transaction to date.¹²

Data from 2022—the first full year the current agency leadership was in place—suggest that the agencies’ new positions on remedies are changing how merger reviews of controversial transactions are resolved in practice. On the one hand, DOJ and the FTC, combined, sued to block 10 mergers in 2022 (more than in any year since at least 2011). But on the other hand, only 20 transactions (fewer than in any year since 2018) led to agency litigation, a consent decree or a reported abandonment. This is too small a sample size from which to draw definitive conclusions. But the data appear to be indicating that, as one would expect, the agencies are litigating more merger cases because they are less willing (or for DOJ, completely unwilling) to resolve antitrust concerns through consent decrees. At the same time, however, fewer transactions are resulting in agency action or abandonment because with the agencies unwilling or reluctant to enter consent decrees, they seem to be allowing more deals to proceed unchallenged in consideration of a fix-it-first remedy or by determining not to take any action with respect to transactions that might have resulted in consent decrees in the past.

Finally, there are preliminary indications that where the parties have agreed to a credible fix-it-first remedy in an appropriate way, courts will be receptive to denying an injunction based on the remedy. To succeed in “litigating the fix,” parties should anticipate that a court will insist on two things. First, it will require that the remedy scope (e.g., the package of assets to be divested and the proposed asset buyer) likely will replicate pre-merger competition or at least come close. For instance, the parties in United/Change successfully convinced the court that United’s proposed divestiture of Change’s ClaimsXten to TPG would replace pre-merger competition in the market for first-pass claims editing.¹³ Relying on testimony from a TPG executive, the court determined that TPG had “the experience necessary to compete effectively” and “the scope of the divestiture [was] sufficient to preserve competition.”¹⁴ Second, a court will require that the merging parties have given the agency sufficient opportunity to investigate the proposed remedy—either during the merger investigation or sufficiently early in the litigation process—so that the agency has the evidence it needs to litigate over the adequacy of the remedy if it chooses to do so. Indeed, during a recent status conference, the court asked merging parties ASSA ABLOY and Spectrum Brands why they waited until shortly before litigation to propose their remedy to DOJ, observing, “[w]e don’t want to incentivize companies to basically wait on the divestiture.”¹⁵ And in FTC v. Ardagh, the district court refused to hear evidence of a proposed divestiture offered after the close of fact discovery in part because the merging parties had not given the FTC sufficient time to evaluate it.¹⁶

Potential Solutions and Challenges for Merging Parties

The agencies’ apparent unwillingness to rely on traditional merger remedies introduces new variables into pre-transaction planning and antitrust review strategy for parties facing transactions that may raise competition concerns in the United States. (Non-US antitrust authorities appear to be continuing their traditional practices of evaluating proposed remedies and clearing transactions subject to remedial undertakings if they find the remedy adequate.) When there is a remedy that is workable as a business matter and consistent with deal objectives, a fix-it-first remedy can be the keystone for a successful approach. A well-considered fix-it-first strategy can bring several potential benefits and potentially even result in a more favorable outcome than under the traditional approach of negotiating a consent decree with the agency. These benefits include:

• decreasing the likelihood of prolonged antitrust litigation (on the possibility that the agency may decline to litigate the adequacy of the remedy), thereby shortening the transaction timeline;
• providing upfront certainty regarding the scope of the divestiture and avoiding the traditional agency remedy review process, which sometimes can lead to a demand for a broader remedy;
• avoiding the compliance burdens of an agency consent decree—for example, being subject to entering into an FTC “prior approval” provision, requiring the merging parties to seek approval from the agency before making future acquisitions in at least the market where the FTC alleges harm to competition, which the FTC is now requiring in all merger consent decrees; and
• in some cases, particularly where the divestiture sale process occurs before the primary transaction is announced or relatively early in the agency review process, avoiding a fire sale at depressed prices at the end of the merger review process.

Notwithstanding these potential benefits, a fix-it-first strategy can be difficult to execute. Accordingly, parties contemplating a merger that may raise antitrust concerns should carefully assess the need for and the potential advantages and disadvantages of pursuing a fix-it-first strategy at the earliest stages of deal consideration. Among other things, parties should analyze carefully:

• the likelihood and scope of potential antitrust objections; 
• the likelihood of an agency challenge absent a remedy; 
• the significance of the assets to be divested to the deal objective; 
• practical challenges for a potential divestiture or other remedy—including, for a divestiture, (a) whether it is feasible to extract selected assets from the rest of a merging parties’ business that enable a divestiture to compete effectively without unduly impairing retained assets and (b) whether there are capable potential buyers that will be interested in the divested assets; 
• the potential timelines for completing the transaction with and without a fix-it-first remedy (and implications for other elements of the proposed transaction, such as the duration and cost of buyer financing commitments); and 
• the consequences to (and rights and remedies of) the parties if a transaction is blocked notwithstanding a fix-it-first strategy.

If the parties decide to employ a fix-it-first strategy, timing considerations will be critical. There may well be difficult decisions to make regarding the balance between seeking to persuade the agency—or ultimately a court—that the transaction will not harm competition at all or in a particular market and beginning the sales process to reach agreement with a divestiture buyer—which can take several months—to minimize closing delays or the risk of going past the transaction’s end date. The buyer may have incentives to try to minimize the scope of the divestiture, while the seller likely will be focused on maximizing deal certainty and expediting closing. Whether one is the buyer or the seller, it is crucial to give careful attention to these potential tensions in negotiating deal terms such as regulatory efforts clauses, remedy commitments, the end date, and reverse termination fees. The merging parties should ensure that the regulatory provisions in the applicable transaction documents faithfully reflect the parties’ understanding of these critical topics.

Members of the WilmerHale antitrust and M&A teams are standing by to help you assess the best path to obtaining regulatory approval and getting your deal done, including the many nuances and considerations associated with employing a fix-it-first strategy.