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Corporations that expected the Federal Trade Commission to be more accommodating in negotiating merger consent decrees under President Bush may be in for a surprise. Senior FTC officials warned that companies should not expect lenient treatment if there is a risk that a proposed merger remedy will fail to preserve competitive equilibrium. “We want to do as much as possible to shift the risk from consumers to the companies doing the deal,” said Daniel Ducore, assistant director in charge of compliance for the FTC’s competition bureau. “If the proposed remedies look iffy, then we need protection.” Ducore spoke at an FTC forum at which senior officials gave the most comprehensive explanation of the agency’s approach to remedies since Timothy J. Muris replaced Robert Pitofsky last year as FTC chairman. The agency’s primary regulatory tools to shift risk from consumers to merging parties are up-front buyers, so-called crown-jewel provisions and hold-separate orders, Ducore said. Up-front buyers are purchasers of divested assets that the FTC has pre-approved. Companies typically oppose up-front buyer requirements because they take longer to negotiate and the buyer can exploit the regulatory process by delaying the deal to get a better price. Phillip L. Broyles, an assistant competition bureau director, said the FTC will demand an up-front buyer when a company “cobbles together” a list of assets to be sold rather than unloading a complete operating unit. That is because there are typically fewer potential buyers for a hodgepodge of assets than for whole, self-sufficient businesses, he said. An alternative antitrust remedy is a crown-jewel provision, which gives a company a set amount of time to sell a pre-identified set of assets. If the firm fails to unload the businesses within the time period, it also must sell a more valuable set of businesses known as a crown jewel. Often the FTC will require the company to turn over both the pre-identified assets and the crown jewel to a trustee, which is authorized to find a buyer at any price. The theory is that the loss of the crown jewel would so hurt the merged companies that they will find a buyer before the deadline. The third regulatory tool is an order to maintain businesses to be divested until a buyer is found. Hold-separate orders were not a major topic of debate during Tuesday’s 90-minute session. Ducore said that buyers of divested assets do not necessarily share the same interests as consumers and that these buyers do not always seek the right mix of assets from the merging parties to restore lost competition. That helps explain why the FTC often contacts buyers of divested assets, a practice that many in the antitrust bar criticize as inappropriate. Several FTC officials said they need to ensure that the buyer acquires the right assets to restore competition and that it gets them at a price that would make them competitive in the market. For buyers of divested assets, the FTC prefers out-of-market purchasers, Broyles said. Yet the agency will accept an in-market rival if it is a fringe player and the divestiture would enhance competition, he said. “We are looking for buyers who are ready, willing and able to buy the assets and operate them like before the merger,” Broyles said. That means the buyer must be financially viable and either have expertise in a related field or experience in the product market, he said. Richard Liebeskind, another FTC assistant competition bureau director, said it is not enough that the buyer of the divested assets will be in business in six months. Rather, the issue for the FTC is whether the buyer will be as competitive as either of the two merging firms. Liebeskind also said there is a perception that the Department of Justice is more receptive than the FTC to “fix-it-first” remedies, which are resolutions to an antitrust problem negotiated by the parties before the deal is submitted to the government. Liebeskind said the FTC is willing to consider fix-it-first offers, even though it is less likely than Justice to accept them. “It requires a clean fix without continuing entanglements,” he said. Liebeskind also criticized companies that attempt a fix-it-ourselves solution, which is when they renegotiate a deal to address the antitrust issues after the FTC has raised objections. This essentially forces the agency to litigate the case, much like it did in Libbey Inc.’s failed purchase of Newell Rubbermaid Inc.’s Anchor Hocking unit. Companies will have a hard time winning fix-it-ourselves cases in court because judges will be sensitive to the difference between keeping a business operating and restoring lost competition, Liebeskind said. “Merging parties should not assume they are going to win a lot of fix-it-ourselves cases,” he said. Though many antitrust lawyers criticize the FTC’s approach to merger remedies, few attended the forum at the agency’s headquarters and only a handful dared address the panel. John Nannes, a partner at Skadden, Arps, Slate, Meagher & Flom and a former acting assistant attorney general for antitrust, said the FTC should be more receptive to fix-it-first because it is a quicker process. “You do want to encourage it,” he said. “The best public policy is fix it first.” FTC competition bureau director Joseph Simons said the agency would hold additional forums and that it welcomes comments on merger fixes, which can be e-mailed to [email protected] “We want concrete actions,” he said. “We are looking forward to making changes to the process.” �Copyright 2002, The Deal, LLC. All rights reserved.

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