By Peter Reap, J.D., LL.M.
In remarks delivered at Georgetown Law’s Global Antitrust Enforcement Symposium, Makan Delrahim highlighted some of the Antitrust Division’s innovations in merger review during his tenure.
In prepared remarks entitled "Reflections": Looking Back and Looking Ahead on Recent Innovations in Merger Review at the Antitrust Division, delivered at Georgetown Law’s Global Antitrust Enforcement Symposium today, Makan Delrahim, Assistant Attorney General in charge of the Department of Justice Antitrust Division, marked the three-year anniversary of his swearing in as antitrust chief by highlighting the agency’s innovations in merger review during his tenure. He cited improvements made to the Antitrust Division’s civil investigative demand (CID) forms and deposition process and its release of a modernized Merger Remedies Manual. He also discussed the use of arbitration to streamline the adjudication of a dispositive issue in a merger challenge in the Novelis/Aleris case.
Civil process updates. Delrahim began by touting the recent updates the Antitrust Division has made to its CID forms and deposition process as a move towards greater transparency and due process in the agency’s investigations. All CID forms will now provide notice to recipients that their documents, answers to interrogatories, and/or testimony may be used by the Justice Department in other civil, criminal, administrative, or regulatory cases or proceedings. CIDs issued to individuals will also now include a Fifth Amendment notice. Further, attorneys taking oral testimony pursuant to a CID will ask questions at the outset of every deposition confirming that the deponent understands the notice provided in the CID.
Merger Remedies Manual. The Antitrust Division also recently released a modernized Merger Remedies Manual, and Delrahim noted that the effort to do so was announced by him at the Georgetown conference in 2018. For the first time, the Merger Remedies Manual addresses the treatment of private equity divestiture buyers. The revised Merger Remedies Manual makes clear that the Division evaluates these divestiture buyers using the same criteria as all other divestiture buyers, including strategic buyers. Over the past two decades, private equity discipline has shifted, and private equity firms increasingly have strategies that are consistent with the Antitrust Division’s conditions for approving divestiture buyers. The model has evolved to one in which private equity investors hold companies for longer periods of time, often partnering with experienced industry participants, he noted.
Just as the Antitrust Division has encountered more divestiture buyers funded by private equity, it has also seen many Hart Scott Rodino filings reporting private equity investments. The FTC recently published a Notice of Proposed Rulemaking to revise the premerger notification rules to create a new reporting exemption for certain de minimis investments of 10% or less, and Delrahim expressed his support the proposed creation of this new exemption.
Fix-it-first remedies. Another aspect of the Merger Remedies Manual that Delrahim focused on in his remarks was the use of fix-it-first remedies. The agency may accept such remedies if the proposed fix does not impose any ongoing obligations on the merging parties and if the Antitrust Division has not yet determined that it has a substantial basis for filing a complaint challenging the transaction. Fix-it-first remedies must fully eliminate any competitive harm. In these cases, the Antitrust Division will forego filing a complaint and a consent decree, although we may ask the parties to sign a "pocket decree" that we can file if necessary, he stated. One benefit of a fix-it-first remedy is that it does not trigger the time consuming and resource-intensive Tunney Act process. The Manual clarifies that the Tunney Act does not apply if the Antitrust Division accepts a fix-it-first remedy, he said.
Arbitration. Delrahim next discussed the Antitrust Division’s use of arbitration to streamline the adjudication of a dispositive issue in a merger challenge in the Novelis/Aleris case. There, the Antitrust Division had serious concerns that Novelis’s acquisition of Aleris Corporation would combine two of only four domestic producers of aluminum autobody sheet, or "Aluminum ABS," as it is known in the industry. Prior to the filing of its complaint, the Antitrust Division and the parties agreed to arbitrate the issue of product market definition: if the United States prevailed, Novelis would have to divest Aleris’s aluminum ABS operations in North America; if the defendants prevailed, the United States would exercise its prosecutorial discretion and dismiss the complaint. Despite using arbitration to resolve the important legal question of market definition, the court still played and continues to play an important oversight function, he noted.
Delrahim highlighted several aspects of how the combination of arbitration plus court enforcement in the Novelis/Aleris case led to an efficient resolution of a merger dispute. First, the arbitration framework—set forth in the Term Sheet agreed to by the parties prior to the filing of the complaint—allowed for both sides to conduct full fact discovery of party and non-party witnesses under the supervision of the district court before the matter was referred to arbitration. Second, arbitration allowed for an antitrust expert to decide a dispositive legal question. Third, the arbitration hearing was confidential, allowing third-party witnesses confidence that sensitive, confidential information would not be divulged to customers or competitors. Fourth, the arbitration hearing was conducted over 10 days and a decision was issued within less than a week, significantly faster and more efficiently than is typical in a trial court. Fifth, the use of arbitration to resolve the dispute was a tremendous savings to American taxpayers.
Also on the topic of arbitration in merger review, Delrahim noted the importance of balancing confidentiality and transparency. To balance the sometimes-conflicting desires for confidentiality and transparency of process, the Antitrust Division released a redacted copy of the arbitrator’s decision to the general public. He summed up by observing that benefits to taxpayers and merging parties that arbitration can confer in merger enforcement are tremendous, and the Antitrust Division is continuing to systematically evaluate the lessons it has learned and the criteria to use when evaluating whether a case may be appropriate for arbitration.
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