“Looks like meat [merger remedies] is back on the menu, boys!” —Uglúk in Lord of the Rings: The Two Towers
The Trump administration’s recently announced settlements resolving the antitrust concerns in transactions mark a shift from the previous administration’s hostile rhetoric against settlements and remedies in merger cases. As evidenced by the Synopsys/Ansys and Keysight/Spirent settlements, the Federal Trade Commission (FTC or the Commission) and Department of Justice Antitrust Division (DOJ or Division) have begun accepting merger remedies, particularly structural remedies like divestitures, to address anticompetitive concerns.
Former FTC Chair Lina Khan focused the FTC on blocking anticompetitive mergers rather than negotiating fixes. The Division’s former assistant attorney general, Jonathan Kanter, similarly eschewed negotiated fixes, preferring to block anticompetitive mergers. Both Khan and Kanter believed that previous merger remedies had not worked as well as hoped. Khan thought that by agreeing to “piecemeal divestitures,” the FTC was functioning as an industrial planner. This claim was later dismissed by current Chairman Andrew Ferguson. While sympathetic to Khan’s view, Chairman Ferguson is of the opinion that remedies must be an option for the FTC as it fulfills its mission of protecting competition.
The DOJ appears to also have shifted its beliefs and agree with the FTC and Chairman Ferguson. In a recent speech, Deputy Assistant Attorney General (DAAG) William Rinner emphasized the Division’s return to traditional antitrust theories, such as concerns regarding market concentration and potential harm to innovation. DAAG Rinner recognized that competition and economic growth rely on a healthy dealmaking environment. In giving remarks regarding merger review and enforcement, he reassured his audience that dealmaking is not viewed with inherent suspicion and that the Division will explore remedies.
Structural Remedies Preferred
As in the previous Trump administration, the US agencies prefer structural remedies as opposed to conduct or behavioral remedies. Both the DOJ and FTC are of the opinion that behavioral remedies are to be treated with substantial caution as they are often impossible to enforce effectively and can lock each agency into the status of monitor for individual firms rather than a guardian of competition across the entire nation. Therefore, while they are not barred, they are disfavored and structural remedies are preferred as an “efficient default”, informed by decades of experience and economic analysis.
Chairman Ferguson recently stated that for the Commission to accept a structural remedy, it needs to “ensure that it involves the sale of a stand-alone or discrete business, or something very close to it, along with all tangible and intangible assets necessary to (1) make that line of business viable, (2) give the divestiture buyer the incentive and ability to compete vigorously against the merged firm, and (3) eliminate to the extent possible any ongoing entanglements between the divested business and the merged firm.” In other words, the Commission must be confident that the divestiture buyer has the resources and experience to make a stand-alone business competitive in the market. Otherwise, it should proceed to litigation. Litigation is favored to guarantee competition over an uncertain settlement.
This view has been reaffirmed by DAAG Rinner, who stated that remedies are inherently fact specific and are to be analyzed on a case-by-case analysis, emphasizing vigorous enforcement of the law. This does not necessarily mean more cases but rather using “a scalpel wherever surgery is needed.” Both DAAG Rinner and Chairman Ferguson in their respective statements have emphasized the importance of transparency throughout the process as well as accountability and predictability.
The Synopsys/Ansys and Keysight/Spirent Settlements
The recent remedies are unsurprisingly structural, and a suitable buyer appears to be at the ready in each settlement, suggesting the parties approached the agencies with a “fix it first” remedy. In the Synopsys and Ansys settlement, both parties will divest certain assets to resolve antitrust concerns surrounding their $35 billion merger. In a proposed settlement order, Synopsys is set to divest optical software tools and photonic software tools and Ansys to divest power consumption analysis tools to Keysight Technologies, Inc., a company well established in its own market. The FTC believes that with these companies’ divestitures, it will be able to preserve competition against several software tool makers and will help protect consumers from higher input prices for cars, smartphones, cameras, TVs, etc. The proposed order also appoints a monitor to oversee the implementation of the requirements of the consent order and a divestiture trustee if Synopsys and Ansys fail to complete the divestiture as required.
Similarly, the Division is requiring Keysight Technologies to divest Spirent Communications plc’s high-speed ethernet testing, network security testing, and RF channel emulation businesses to resolve concerns regarding their proposed $1.5 billion merger. The divestiture is to be made to Viavi, an already established and innovative test and measurement company.
Conclusion
Moving forward, where there are significant overlaps with close competitors, mergers will continue to be met with scrutiny. Agencies, however, are open to resolving without litigation. DAAG Rinner reaffirmed that the DOJ will be more rigorous in assessing any divestiture buyer’s incentives and ability to replace competition in every dimension, including product or service quality. The FTC recognizes that settlements can be a better way to conserve the agencies’ finite resources compared to prolonged litigation while achieving a favorable outcome for competition.
Parties contemplating acquisitions that involve competitive overlaps should consider structural remedies, such as divestment options, prior to signing the transaction agreement, including identifying potential divestiture buyers. Evaluating remedies early and devising a “fix it first” strategy sets the merging parties up for quicker success and increases the chances of a less burdensome second request. A “fix it first” strategy involves many risks as the remedies may be not adequate to fully address competitive concerns posed by the merger but sufficient to make litigation challenging the “fixed” merger difficult or impossible.
*Nervana Naguib, a summer associate at McCarter & English not yet admitted to the bar, contributed to this alert.
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