ICN Merger Wrking Grup Effective Remedies Jsep Carpi Badia Head f Unit, Mergers Case Supprt and Plicy DG Cmpetitin, Eurpean Cmmissin 16 February 2017 Washingtn DC DISCLAIMER The views expressed are purely thse f the speaker and may nt in any circumstances be regarded as stating an fficial psitin f the Eurpean Cmmissin.
Remedies in merger cases Intrductin Prprtinate slutin t address cmpetitin cncerns Main interventin tl Requirements: Remve cmpetitin cncerns entirely Viability Necessary t address risks Cmpsitin risk, purchaser risk, asset risk Cnsequences fr design and implementatin f remedies ICN Guidance: Merger Remedies Guide (2016) Recmmended Practices fr Merger Ntificatin & Review Prcedures Sectin XI (2005) Guidance EU Cmmissin: Cmmissin Ntice n remedies (2008) Standard mdel texts fr divestiture cmmitments (revised 2013) 2
STRUCTURAL VS. NON-STRUCTURAL REMEDIES 3
Structural vs. nn-structural remedies Structural "One-time remedies intended t maintain r restre the cmpetitive structure f the market" (Remedies Guide, p. 8) Typically the sale f ne r mre businesses, physical assets r ther rights (Remedies Guide, p. 8) Nn-structural = cnduct = behaviural remedies Mdify r cnstrain future cnduct f merging firms (Remedies Guide, p. 8) 4
Structural vs. nn-structural remedies Preference fr structural remedies (Remedies Guide, p.9; EU Remedies Ntice, para. 15) Merger results in lasting structural change remedy shuld als have lasting effect D nt require lng-term mnitring But ften accmpanied by nn-structural remedies t ensure effectiveness (Remedies Guide, p. 8) Interim supply bligatin Hld separate bligatins 5
Preference fr structural remedies: Stats EU Practice 6
Structural remedies: Divestiture f a standalne business "Divestiture f an intact, nging, standalne business has the lwest cmpsitin risk" (Remedies Guide, p.11) Examples in the EU: M.7801 Wabtec / Faiveley M.7737 Hneywell/Elster M.7678 Equinix/Telecity M.7408 Cargill/ADM/Chclate Business 7
Structural remedies: Divestiture f less than a standalne business (Remedies Guide, p.11) If assets are sufficient t allw buyer t cmpete effectively But merging firms have incentive t divest fewer assets than required burden n parties t shw that asset package is sufficient Preferably all assets frm ne party (n "mix and match") Examples in the EU: M.7555 Staples/Office Dept M.7278 GE/Alstm 8
When pssible, structural remedies als fr vertical mergers Example in a vertical case: Abbtt/ Alere (2017) Input freclsure cncern: the target (Alere) supplies BNP tests t a 3rd party fr use in lab machines. The buyer (Abbtt) cmpetes with this 3rd party in lab machines. Remedy: divestment f Alere's BNP prductin 9
Remedies ther than divestitures: Different types Remval f links with cmpetitrs Access remedies Cntract cncluded during prceedings with key custmer(s) + cmmitment fr thers 10
WHAT ASSETS SHOULD BE DIVESTED? 11
Scpe Cver all prblematic markets infrmed by cmpetitive assessment Include all assets necessary t cmpete effectively Tangible (R&D, prductin, sales, marketing) and intangible (IPRs, knw-hw) assets, persnnel, permits, cntracts, custmer recrds, etc. Benchmark current peratins f the divestment business Any exclusins have t be justified (Remedies Guide, p. 12; EU: in Schedule / Frm RM) EU: "Catch-all clause": assets r persnnel used and required fr cntinued viability/cmpetitiveness, even if nt explicitly cvered in the Schedule 12
Scpe Assessment f viability and cmpetitiveness On a standalne basis May waive certain assets at the stage f the purchaser apprval (Remedies Guide, p. 15) Reduced scpe may be t sme extent cmpensated by identifying purchaser already during merger review prcess and befre clsing f the merger Lk at varius factrs (EBITDA, csts, capacity, utilisatin, prjectins, etc.) 13
FINDING AN APPROPRIATE BUYER 14
Purchaser criteria (Remedies Guide, p. 16, 22) Standard criteria Financial capability Managerial expertise Operatinal capability Independent frm merging parties Demnstrate intent t cmpete in relevant market Divestiture itself must nt raise cmpetitin issues Specific criteria (e.g. experience in the industry) 15
TIMING 16
Timing f the purchaser apprval Identificatin f suitable purchaser: Usually allwed after clsing f the merger = "pst-clsing divestiture" (Remedies Guide, p. 13) If authrity is cnfident that divested business will attract suitable purchaser N risk f degradatin befre divestments Smetimes required befre clsing f merger = "pre-identified purchaser" (Remedies Guide, p. 15; in the EU this is called an "upfrnt buyer" r, if the purchaser is identified during the merger review prcess, a "fix-it-first purchaser") 17
Time perid fr the sale Initial sales perid (Remedies Guide, p. 14) Called "First divestiture perid" in EU Arund 6 mnths Merging parties can seek suitable buyer Subsequent sales perid (Remedies Guide, p. 14) Called "Trustee divestiture perid" in EU Arund 3 t 6 mnths Trustee in charge f selling Until clsing f divestiture: hld separate and preservatin f assets (Remedies Guide, p. 14) 18
POST-DIVESTITURE RELATIONSHIPS BETWEEN BUYER AND SELLER 19
Pst-divestiture relatinships Smetimes the divested business needs shrt-term transitinal services (Remedies Guide, p. 17) Duratin shuld be minimized (Remedies Guide, p. 23) Transitinal services agreement shuld be subject t review by cmpetitin authrity (Remedies Guide, p. 17) Independent mnitring f transitinal agreement (Remedies Guide, p. 23; in the EU: mnitring trustee) N seller financing (Remedies Guide, p. 23; EU Remedies Ntice, para. 103) 20