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The Latest Trend in Antitrust Risk-shifting: Agreeing to Remedial Precedent
Practical Law Legal Update 9-560-0785 (Approx. 5 pages)
The Latest Trend in Antitrust Risk-shifting: Agreeing to Remedial Precedent
by Practical Law Antitrust
| Published on 11 Mar 2014 • USA (National/Federal) |
Highlights of the latest trend in antitrust risk-shifting provisions, where the buyer agrees to remedial obligations used in prior merger consent decrees within the same industry or under similar circumstances.
Merging parties wishing to allocate the antitrust risk in a transaction typically include risk-shifting provisions in their merger agreement. Risk-shifting provisions set out what the buyer is willing to do to:
- Get the deal done, such as:
- obligations to divest (see Practice Note, What's Market: Antitrust Divestiture Limitations); and
- obligations to litigate.
- Compensate the seller if the deal is delayed or fails for antitrust reasons, including the payment of:
- ticking fees, generally a daily per share increase in consideration (see Practice Notes, What's Market: Antitrust-related Ticking Fees); and
- reverse break-up fees (see Practice Note, What's Market: Reverse Break-up Fees for Antitrust Failure).
For more on antitrust risk-shifting generally, see Practical Law Antitrust's Antitrust Risk-shifting Toolkit.
To track and analyze the latest in risk-shifting provisions, access our What's Market, Antitrust Risk-shifting Database.
Latest Trend: Looking to Precedent
The latest trend in antitrust risk-shifting is agreeing to do what others in similar industries or under similar circumstances have agreed with the federal antitrust agencies to do to remedy antitrust concerns about their acquisitions. For example, in the Comcast Corporation and Time Warner Cable Inc. merger agreement, Comcast agreed to, among other things, accept conditions consistent with those imposed by the federal antitrust agencies in prior cable deals that had both:
- Closed in the past 12 years.
- An aggregate purchase price of at least $500 million.
Comcast may also terminate the deal if a government authority imposes a burdensome condition, defined in the merger agreement as divestitures or other undertakings outside of those that Comcast expressly agreed to make to obtain approval for the merger (see What's Market, Antitrust risk-shifting provisions in Comcast Corporation/Time Warner Cable Inc. merger agreement).
Another example is in the Smith & Nephew plc and ArthroCare Corporation merger agreement. There, Smith & Nephew agreed to, among other things, enter into certain transitional service agreements that are typically required in connection with antitrust merger settlements (referred to as consent decrees) involving intellectual property. These transitional services, including technical support, manufacturing or interim supply agreements, allow a licensee to compete in the manufacturing and sale of the covered products on a worldwide basis (see What's Market, Antitrust risk-shifting provisions in Smith & Nephew plc/ArthroCare Corporation merger agreement).
Benefits for the Merging Parties
Committing to remedial obligations that the antitrust agencies have required to approve similar deals allows the merging parties to:
- Better understand up-front the scope of potential remedies.
- Quickly communicate to the government what remedies the parties are willing to undertake, knowing the government has accepted similar remedies under similar circumstances.
- Agree to remedies their competitors have agreed to, therefore, potentially disadvantaging themselves only to the same degree as those competitors.
Best Practices
Using remedial precedent as a basis for antitrust risk-shifting provisions works best when, as in the case of Comcast, the buyer has previously closed mergers or acquisitions in the same industry after negotiating and finalizing settlement agreements with the investigating antitrust agency. Buyers and their counsel who have negotiated settlements for deals in the same industry or under similar circumstances have a good understanding of what the government is willing to accept to remedy the deal. However, this trend is also available to buyers and their counsel even without similar settlement history if they are familiar with the types of remedies typically used under certain circumstances.
For a simple, cost-effective way to research and analyze remedies accepted by the antitrust agencies in similar industries or under similar circumstances, antitrust counsel should access Practical Law Antitrust's Federal Merger Enforcement Action (FMEA) database (see What's Market, Antitrust Federal Merger Enforcement Actions). The FMEA database houses analytical summaries for more than five years of federal merger enforcement actions, including a break-down of remedies used in both consent decrees and litigated cases. Counsel can easily narrow their remedy searches by, among other things:
- Date.
- Agency.
- Industry.
- Remedy type.
For example, with the FMEA database, counsel can determine in seconds the types of remedies that are typically required in retail grocery store mergers in addition to divestitures by:
- Narrowing the search using the industry facet to review only "Retail" deals.
- Comparing both the "Product Market" and the "Remedy" fields across all of the relevant merger summaries.
The chart below shows a sampling of these search results:
DEAL (DATE OF COMPLAINT) | PRODUCT MARKET | REMEDIES OTHER THAN DIVESTITURES |
(Feb. 24, 2014) | The retail sale of food and other grocery products in supermarkets. | Employee provisions. Within 15 days after each divestiture closing date, Bi-Lo must provide an opportunity for the relevant acquiror to meet personally and outside Bi-Lo's presence with any employees of the relevant supermarket and to make offers of employment to any of those employees. Bi-Lo also may not interfere with the hiring by an acquiror of any employees of the relevant supermarket or make any counteroffer to any employee who has an outstanding offer of employment from the acquiror for one year. Bi-Lo must also remove any impediments that may deter those employees from accepting employment with the acquiror (including non-compete or confidentiality provisions). Transitional services. At any acquiror's option, Bi-Lo must enter into a transition services agreement with that acquiror for a term up to 180 days. The services (provided at cost) may include, among other things, payroll, employee benefits, accounting, IT systems, distribution, warehousing, use of trademarks or trade names for transitional purposes, and other logistical and administrative support. Prior notice provision. Yes, for ten years. |
(December 23, 2013) | The retail sale of food and other grocery products in supermarkets. | Employee provisions. Within 15 days after signing the relevant divestiture agreement, Albertson's must provide an opportunity for the acquiror to meet personally (and outside of the presence of any Albertson's employee) with any of the employees of the divested supermarkets and to make offers of employment to any of those employees. For one year from the divestiture closing date, Albertson's also may not interfere with the acquiror's hiring or employing of the employees of the divested supermarkets and must remove any impediments that would deter those employees from accepting employment with the acquiror (including non-compete or confidentiality provisions). Albertson's also may not make any counteroffer to any employee who has an outstanding offer of employment from the acquiror. Transitional services. At the acquiror's option, Albertson's must provide transition services for up to 180 days following the divestiture closing date. Those services must be provided at cost and may include payroll, employee benefits, accounting, IT systems, distribution, warehousing, use of trademarks or trade names for transitional purposes, and other logistical and administrative support. Prior notice provision. Yes, for ten years. |