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Out-of-market Divestitures: When and Why
Practical Law Legal Update 2-603-1626 (Approx. 4 pages)
Out-of-market Divestitures: When and Why
by Practical Law Antitrust
| Law stated as of 09 Mar 2015 • USA (National/Federal) |
In merger consent decrees, the FTC and DOJ occasionally require divestitures that are outside of the problematic market. These are some recent examples of out-of-market divestitures and the reasoning behind them. Subscribers can review and compare summaries of recent consent decrees and other antitrust enforcement actions using Practical Law's What's Market: Federal Merger Enforcement Actions database.
The FTC recently entered into a consent decree that highlighted the issue of out-of-market divestitures, that is, a divestiture outside of a relevant market (see What's Market, In the Matter of Sun Pharmaceutical Industries Ltd., Ranbaxy Laboratories Ltd. and Daiichi Sankyo Co., Ltd. (consent decree)). The Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) frequently require divestitures as remedies to mergers that they conclude are likely to have anticompetitive effects. The divestitures are typically limited only to those markets in which the mergers' anticompetitive effects would be felt. However, the antitrust agencies occasionally require divestitures that are outside of the relevant market, because:
- Additional assets are needed to create a viable business.
- Including out-of-market assets is more efficient and would have a minimal effect on the divesting company.
- Out-of-market assets are needed for the acquiror to obtain other regulatory approvals, such as FDA approval, to sell the relevant product.
Some recent examples highlight the various reasons for out-of-market divestitures:
- Sun Pharmaceutical Industries Ltd./Ranbaxy Laboratories Ltd.: The FTC alleged that the relevant market was the development and sale of generic minocycline tablets in the US. In addition to requiring Sun to divest assets related to Ranbaxy's generic minocycline tablets, it required divestiture of assets related to an additional product, Ranbaxy's generic minocycline capsules. This divestiture ensured that the divestiture acquiror could achieve regulatory approvals to qualify a new ingredient supplier for minocycline tablets, which would happen much more quickly if the acquiror controlled both products (see What's Market, In the Matter of Sun Pharmaceutical Industries Ltd., Ranbaxy Laboratories Ltd. and Daiichi Sankyo Co., Ltd. (consent decree)).
- Community Health Systems, Inc./Health Management Associates, Inc.: The FTC alleged that the relevant market was the sale of general acute care inpatient services (GAC services) to commercial health plans and commercially insured patients in two counties. However, the FTC found that GAC services alone would not constitute a viable business. As a result, the FTC required Community Health to divest its two hospitals in the relevant geographic markets, including outpatient operations and businesses associated with each hospital (see What's Market, In the Matter of Community Health Systems, Inc. and Health Management Associates, Inc. (consent decree)).
- Unilever, N.V./Alberto-Culver Co.: The DOJ alleged that one relevant market was the sale of hairspray in retail stores in the US. However, the DOJ required Unilever to divest its Rave hairspray products worldwide because the foreign sales of Rave were de minimus and the divestiture of the Rave worldwide rights was the most efficient way to divest the brand (see What's Market, U.S. v. Unilever, N.V. and Alberto-Culver Co. (consent decree)).
For summaries of recent FTC and DOJ merger enforcement actions, see What's Market: Federal Merger Enforcement Actions.
For a look at more Practical Law resources on merger investigations and analysis, see