Hunting for the quick fix? Phase I remedies in UK merger control

1. BIICL 7th Annual Transatlantic Antitrust Dialogue London, 1 May 2007 Hunting for the quick fix?Phase I remedies in UK merger control Simon Pritchard Director, Mergers

2. Learning from peer agencies Ex post studies – CC (2006), DGCOMP (2005), and FTC (1999) Policy guides, notices – 2004 DOJ guide, 2007 EC materials Learning from DIY experience Beware of misplaced faith in behavioural remedies – National Express/Prism (2000, reviewed in 2006) Beware contingencies and scarcity of suitable purchasers in divestiture cases – Tesco/Co-op Slough (2004, referred in 2007) Agency best practice

3. Boots / Alliance Unichem – divestiture of pharmacies Gala / County – divestiture of bingo hall Pendragon / Reg Vardy – divestiture of car dealerships Inchcape / EMH (authorized repair services) Co-op / Fairways – divestiture of funeral homes Tetra Laval / Carlisle – IPR remedy in industrial cheese equip. Aggregate Ind / Foster Yeoman – divestiture of asphalt plants Flybe / BA Connect – release aircraft parking stand at SOU OFT merger remedies cases 2006-7

4. First UK up-front buyer case Rationale for transaction was target’s U.S. assets, but creates two 2:1’s and a 3:2 in markets for industrial cheddar-making equipment in UK and Ireland Here, Phase II would not further the substantive analysis; key issue is remedies design and buyer Only 5-10% of Carlisle UK plant devoted to overlap products; doubtful a buyer would want entire plant Case study – Tetra Laval/Carlisle (2006)

5. Quasi-structural remedies package: ‘irrevocable, exclusive, perpetual’ EEA-wide licenses for IP rights OFT presses pause on timetable; Tetra finds candidate buyer OFT reviews FTC and DG Comp ex post studies; tests credibility of buyer and scope of package pre-CRM Tetra closes on worldwide transaction outside UK Post-decision, Tetra signs conditional S&PA with buyer; OFT consults on remedies package + buyer in tandem Bonus: Irish had gone to Phase II; closed early due to UK fix Tetra Laval/Carlisle cont/…

6. First-phase remedies are key to a sound two-phase merger regime, and to reducing frictional costs of UK system Parties and advisers can assist the OFT with pinch-points Parties control what they offer – and typically prefer not to engage early, fearing over-enforcement Clear-cut standard: degree of confidence in defining scope of problem (e.g. which overlaps do / don’t raise concerns) Clear-cut solution: risk and complexity factors – viability risk, deterioration risk, purchaser risk Third party litigants – addressing above improves chances of defending a settlement on appeal – Celesio v OFT Process optimisation – parties

7. OFT will respond to early and candid engagement on a ‘without prejudice’ basis Informal advice at confidential stage if parties ‘play ball’ Pre-notification dialogue OFT indulges in ‘closed envelope’ devices to reassure clients Plan to consult on a second-bite option for ‘near miss cases’ featuring a good faith offer prior to the Case Review Meeting New head of remedies – creation of new senior position within OFT Mergers to consolidate know-how and produce guidance Finally, OFT seeks optimal blend of empiricism and pragmatism: accepting parties’ divestment offer of all 3:2’s in Boots/Unichem Process optimisation – OFT