Merger Remedies WorkshopOctober 25, 2010

Deborah P. MajorasChief Legal Officer & SecretaryThe Procter & Gamble Company

Agenda

• Part I: Key Principles • Part II: Structural and Conduct

Remedies• Part III: Considerations for

Divestiture Remedies

Part I: Key Principles

Key Principles

• Merger Remedy should redress a violation of law.– Remedy without violation could

unjustifiably restrict companies and raise costs to consumers

• If no violation is found, agency should not stop the merger.– Google/Double-Click merger

Key Principles

• Remedy should restore competition to premerger levels and be based on sound legal and economic principles.

• Fact-intensive exercise:– What harm will result from merger?– How will the remedy fix the harm?

• Remedy should be minimum necessary to cure the competitive harm.

Key Principles

• Remedy should promote competition, not competitors.– Objective of remedy is to restore

competition to premerger levels, not to protect or favor a particular competitor

Key Principles

• Remedy should be tailored to fit the violation.– No “one-size-fits-all” for remedies– What works in one industry may not

work for another

Key Principles

• Remedy should not be punitive.– Goal of remedy is to restore competition

to premerger levels, not to “punish” the merging parties for proceeding with the merger

Key Principles

• Remedy should be enforceable.– Remedy will not restore competition if it

cannot be enforced, or would be difficult to enforce.

Part II: Structural and Conduct Remedies

Structural and Conduct Remedies

• Two types of remedies1. Structural: deals with the structure of

the market– Divestiture of tangible assets– Licensing of intangible assets

2. Conduct: deals with the conduct of the merging parties– Firewalls – Non-competes– Restrictions on access to scarce personnel

Structural and Conduct Remedies

• Structural Remedies are preferred.– Clean– Certain– Avoid costly government involvement in the

market

• Structural Remedy Cases:– U.S. v. Election Systems and Software, Inc. (June

2010)– U.S. v. Microsemi Corporation (Aug. 2009)– In re Pfizer, Inc. and Wyeth (FTC, October 2009)

Structural and Conduct Remedies

• Conduct Remedies are Disfavored. . . – Especially for horizontal mergers– Difficult to craft– More costly to administer– Easier for parties to circumvent

• . . . But May be Appropriate in Certain Circumstances.– Appropriate to address concerns in vertical

mergers without stopping the merger or altering deal structure

– More often used as a complement to structural remedy

Structural and Conduct Remedies

• Conduct remedy cases:– U.S. v. Live Nation, Inc. and Ticketmaster

Entertainment, Inc. (DOJ, Jan. 2010)– In the Matter of PepsiCo, Inc. (FTC, Feb.

2010)– In the Matter of Pilot Corporation,

Propeller Corp., and Flying J Inc. (FTC, June 2010)

Part III: Considerations for Divestiture Remedies

Divestiture Remedies - Considerations• Divestitures are the most preferred structural

remedies.• Divestiture should occur quickly.

– Restores competition to market as soon as possible

– Mitigates decrease in value of assets

• Agency should approve proposed Purchaser.– Purchaser should have both the means and the

incentive to maintain premerger level of competition in relevant market

Divestiture Remedies - Considerations• Merging parties should hold divested

assets separate to avoid “unscrambling the eggs.”

• Divestiture should include all assets necessary for Purchaser to be effective, long-term competitor.

Divestiture Remedies - Considerations• “Fix-it-first” Divestiture

– What is it? Divestiture of business implemented by parties and accepted by the agency prior to merger consummation

– Benefit? May restore competition to the marketplace more quickly and effectively than by being ordered by the agency

• Downside? May require a “fire sale”• A “fix-it-first” divestiture requires thorough

investigation by agency .

Additional Resources on Merger Remedies• US Dep’t of Justice, Antitrust Division Policy Guide to Merger

Remedies (Oct. 2004), available at http://www.usdoj.gov/atr/public/guidelines/205108.pdf

• Federal Trade Comm’n, Statement of the Federal Trade Commission’s Bureau of Competition on Negotiating Merger Remedies (Apr. 2, 2003), available at http://www.ftc.gov/bc/bestpractices/bestpractices030401.shtm

• Frequently Asked Questions About Merger Consent Order Provisions, available at http://www.ftc.gov/bc/mergerfaq.shtm

Questions?