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Up-front Buyer and Fix It First Remedies Part A – European Commission Part B – UK Competition Commission

Up-front Buyer and Fix It First Remedies Part A – European Commission Part B – UK Competition Commission. Chris Bright BIICL Merger Control Conference 13 November 2008. Part A – European Commission. EU framework. New Remedies Notice

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Up-front Buyer and Fix It First Remedies Part A – European Commission Part B – UK Competition Commission

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  1. Up-front Buyer and Fix It First RemediesPart A – European CommissionPart B – UK Competition Commission Chris Bright BIICL Merger Control Conference 13 November 2008

  2. Part A – European Commission

  3. EU framework • New Remedies Notice • Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004, 22 October 2008, OJ [2008] C 267/01 • Specific provisions dealing with up-front buyer / fix it first / crown jewels • paras 50-57 and 44-46 • Up-front buyer concerns cases involving considerable obstacles for divestiture, e.g. third party rights or uncertainties as to finding suitable purchaser, or cases causing considerable risks of preserving competitiveness and saleability of divestiture business in interim period • Fix it first concerns, in particular, cases where identity of purchaser crucial for effectiveness of proposed remedy • Crown jewel alternative where implementation of preferred divestiture option uncertain in view of, e.g. third parties’ pre-emption rights or uncertainty as to transferability of key contracts, IP rights, or uncertainty of finding suitable purchaser • Model Text for Divestiture Commitments • “The proposed concentration shall not be implemented unless and until [X] or the Divestiture Trustee has entered into a final binding sales and purchase agreement… and the Commission has approved the purchaser and the terms of sale…” (Section B.1) • Form RM • “Acquisition by a suitable purchaser: Explain the reasons why, in your view, the business will be acquired by a suitable purchaser in the time-frame proposed in the commitments offered.” (para 5.13)

  4. EU history of up-front buyer • Commission has always had this power • First used in Case No COMP/M.2060 Bosch / Rexroth (3 May 2000) • Used relatively infrequently • 6 times out of 87 published Phase II conditional clearance decisions (75 of which involving divestitures)

  5. EU history of up-front buyer (cont.)

  6. EU history of fix it first • Used even less frequently than up-front buyer • 4 times out of total 87 published Phase II conditional clearance decisions (75 of which involving divestitures)

  7. Areas for use • Where: • asset package only viable in particular circumstances • few acceptable purchasers • third party consents required • difficulties in financing purchase

  8. Practical issues • For notifying party • Little time to run competitive process (although potential for parallel negotiations) • Any crown jewel must be held separate in addition to preferred package - can’t implement any synergies in respect of either package • Both crown jewel and preferred package have to be maintained as competitive businesses • Neither up-front nor fix it first remedies are much use when there may not be any suitable purchasers at all • For potential purchaser • Potential deal now - reduced risk of resurgent competitors during a later auction process • Greater negotiating strength for purchaser, as against time constrained notifying party • Increased time pressure to conduct due diligence and deal negotiation • Risk of being frozen out in favour of another competitor • Risk of notifying party running parallel processes • Potentially less generous package if notifying party points to purchaser’s ability to fill in the gaps • Risk of spin-off / de-merger

  9. Part B – UK Competition Commission

  10. Competition Commission Guidelines • Merger Remedies: Competition Commission Guidelines Consultation Draft - May 2008 • Where CC is in doubt as to viability or attractiveness to purchasers of proposed divestiture package (i.e. composition risk) or believes there may be only limited pool of suitable purchasers (i.e. purchaser risk), it may require parties to obtain suitable purchaser that is contractually committed to transaction before permitting proposed merger to proceed or completed merger to progress with integration • Where CC considers that competitive capability of divestiture package may deteriorate pending the divestiture (i.e. asset risk) or completion of divestiture may be prolonged, it may also require that up-front buyer completes acquisition before merger may proceed or, in case of completed merger, before merger parties may progress with integration (para 3.19)

  11. CC history of up-front buyer • Few cases • Note number of completed mergers referred which limits scope • Kemira GrowHow/Terra Industries merger inquiry (2007) • CC insisted on up-front buyer where divestiture business was ‘carved out’ of existing business as, given structure of deal, there were doubts that suitable purchaser would be found • CC noted that pool of suitable purchasers would probably be restricted to established companies in the UK chemical distribution industry • Somerfield v Competition Commission (Competition Appeals Tribunal, 2006) • CC ordered Somerfield to divest certain acquired Morrisons supermarkets • CC excluded Limited Assortment Discounters from ‘competitor set’ of permitted divestees, on basis that they were insufficiently close competitors to conventional supermarkets and thus would not be sufficiently committed to relevant market • Somerfield appealed unsuccessfully to CAT • Hamsard 2786/Academy Music Holdings (2007) • CC ordered parties to divest specific indoor live music venues in London • CC insisted on up-front buyer due to concerns about attractiveness of divestiture package to purchasers and doubts about whether there were suitable purchasers • Remedy provided incentive to quickly reach agreement with suitable purchaser and so reduced the risk of possible degradation of assets

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