Antitrust practitioners expect greater acceptance of structural and behaviorial remedies in Trump administration
- Agencies should weigh remedies relative to totality of deal
- Choice Hotels/Wyndham and Amazon/iRobot examples where settlements could have been reached
Under the incoming Trump administration, US regulators are likely to focus on structural and behaviorial remedies to resolve competition concerns in deals, said antitrust lawyers.
This is in sharp contrast to the approach primarily used by the regulators under the Biden administration, which has focused more on litigation, they added.
“The absolute massive change that we are expecting is allowing structural and behavioral remedies, allowing people to divest a small portion rather than challenging the whole deal,” said one antitrust lawyer.
Currently, the Federal Trade Commission has challenged mattress manufacturer Tempur Sealy’s [NYSE:TPX] proposed USD 4bn acquisition of Mattress Firm, the largest mattress retailer in the country. As part of the deal, the parties had offered divestitures of some stores, but the remedy was rejected. A two-week trial started on 12 November, with media reports noting closing arguments will be made on 16 December.
Another hotly contested deal the FTC recently challenged was Tapestry’s [NYSE:TPR] USD 8.5bn acquisition of Capri [NYSE:CPRI] in the affordable luxury handbags segment. Once the federal judge in the Southern District Court of New York ruled in favor of the regulator, the parties abandoned the deal on 14 November. The FTC’s administrative court was set to start its proceedings on 9 December, with the deal having a drop-dead date of mid-February 2025.
“I think the Tapestry-Capri deal could have been resolved with remedies,” said a second antitrust lawyer. He further said, with the cooperation of the Department of Justice, the current UnitedHealth [NYSE:UNH]/Amedisys [NASDAQ:AMED] deal, which has been challenged by the regulator and multiple state AGs, could have been resolved as they already made a divestiture proposal.
Last month, the USD 3.3bn acquisition was challenged by the DoJ and multiple state AGs on the grounds that a merger would harm competition and negatively impact patient care and healthcare workers. This isn’t UnitedHealth’s first rodeo with regulators under the Biden administration.
In January 2021, UnitedHealth’s Optum agreed to acquire Change Healthcare for nearly USD 13bn and originally hoped the deal would close by the end of the year. The deal was challenged by the DoJ and two other state AGs on the grounds that it would result in unlawful suppression of competition. After a two-week trial, in September 2022, a federal judge cleared the deal. The judge also approved the divestiture of ClaimXten to private equity fund TPG. The parties announced the closure of the deal in October 2022. The DoJ and state AGs appealed the decision but withdrew it by March 2023.
Lawyers argue that it’s never easy to get divestiture remedies approved, but it was almost impossible during this administration at either agency. Some of the sectors like big-tech, healthcare, and pharmaceuticals deals have always got attention from regulators but during the Biden administration the greatest number of deals were abandoned, they added.
Dechert’s DAMITT Q3 2024 report says that significant merger investigations are increasingly binary these days — most transactions that raise potential competitive concerns under Section 7 are either fully challenged or fully cleared, with little middle ground which has led to parties either choosing to litigate or abandon a deal.
According to the report, actions taken by US agencies have resulted in a combined 13 abandonments and complaints so far in 2024, the highest number of adverse outcomes in a single year since they started doing this report.
During ABA’s Fall Forum in mid-November, FTC Commissioner Melissa Holyoak said that the FTC’s dogmatic approach of not offering remedies with the intention to litigate, even if just as a deterrent effect, needs to change. She criticized the agency’s current approach towards deals.
The second lawyer said if you have a hundred product markets and only one of them raises a competitive issue, this administration would have blocked the deal. “Every other administration in modern history would have said, there is a problem and let’s try to resolve it,” he added.
A third antitrust lawyer said that very often when the FTC brings a case before a federal judge and if they end up winning, often the merger is completely over. He noted a good example of that would be the case the FTC brought against IQVIA Holdings’ [NYSEL:IQV] acquisition of DeepIntent, owned by Propel Media (PMI), where they alleged that the merger would give them a dominant position in advertising of health care products.
“Once the judge in New York decided in favor of the FTC. I think the deal just fell apart. The parties just walked away,” he added. He reasoned that once a judge rules in favor of the FTC, they are paused for a lengthy administrative trial under Part 3.
With the prolonging of a deal, the viability of its survival comes into play. Factors like financing, shareholders, approaching drop-dead dates, and risk arbitrage can affect the ability of both parties to hold on to a transaction.
“It’s just not worth spending a lot of time and money for an uncertain outcome. People may be willing to give more time or adjust an agreement if there’s a good chance that they can get it resolved through a consent agreement,” the third lawyer added.
He further added that if the agency has a problem with a deal and if they lose their trial, it means that the deal still has the potential in some aspect to harm the market. But now that the deal has been approved in its entirety by the court, a portion of the harm will remain unaddressed.
Gregory Heltzer, antitrust partner at McDermott Will & Emery, said that he has seen remedies put in place with consent decrees in very limited circumstances. “I think we’re going to see a more pragmatic approach in that a new administration may be willing to engage in more consent decrees than what we’ve seen in the current administration,” he added.
A fourth antitrust lawyer weighed in that deals like Choice Hotels’ [NYSE: CHH] acquisition of Wyndham Hotels & Resorts [NYSE: WH] and Amazon’s [NASDAQ:AMZN] USD 1.4bn acquisition of Roomba maker iRobot [NASDAQ:IRBT] are two abandoned deals that could have been approved via settlement in a different administration. Choice Hotels/Wyndham could have had some divestiture of hotel sites or brands and Amazon/iRobot could have had a conduct remedy.
A fifth lawyer explained how one of his deals was litigated for two-and-a-half to three years before they won the case. He argued that mergers can’t survive that much procedure, not when publicly traded companies are involved. But he is now expecting things to change to more practical outcomes.
While lawyers agreed that there still will be merger challenges under the new administration as many challenges were brought by the first Trump administration, they are hopeful that they will look at deals with an eye toward reaching a compromise.