Taking a hard look at the asset package

On Monday, the FTC accepted for public comment a proposed consent order involving a consummated merger in the eye care industry. According to the complaint, Valeant Pharmaceuticals’ 2015 acquisition of Paragon Holdings reduced competition for polymer discs (aka buttons) used to make three types of rigid gas permeable (hard) contact lenses. Under the proposed order, Valeant, the parent of Bausch + Lomb, must divest the entire hard contact lens business it acquired, as well as assets outside that business, to restore competition to its pre-merger state. Valeant will divest the assets and business to a newly-created entity headed by the former president of Paragon Holdings.

The proposed order is a reminder that the FTC carefully tailors its remedies to resolve the competitive problem created by the merger. There is no “one-size-fits-all” for merger remedies, and this is especially true for consummated mergers where some or all of the assets may have been fully integrated into the acquiring firm’s business, or may no longer be available for sale to a Commission-approved buyer. The principal objective of a merger remedy is to effectively redress the law violation for the benefit of consumers, which means devising and imposing a remedy that most closely replicates the competition that was lost due to the merger. If a divestiture is required, it must include all assets necessary for the buyer to be an effective, long-term competitor.

In some cases, a “clean sweep” or total divestiture of the acquired business is possible, and can restore competition through the resurrection of a viable competitor. In others, a clean sweep might not be enough and divestiture of assets outside the relevant market might also be needed to establish a competitor able to compete against incumbents in the relevant market. In both Chicago Bridge and Polypore – two consummated mergers in which appellate courts upheld the Commission’s remedial approach – the Commission’s orders included assets outside the relevant market because those assets were necessary to restore competition within the relevant market and provide the buyer with the ability to compete. In Chicago Bridge, assets for building water tanks were added to assets for building cryogenic tanks because water tank sales would provide the regular income stream needed for the divestiture buyer’s viability. Similarly, in Polypore, the divestiture order included an Austrian manufacturing plant that had just been built and was only starting to operate at the time of the acquisition because the plant would provide needed flexibility for the buyer to compete for customers in North American markets for battery separators.

Here, the Commission determined that, in order to re-establish a viable competitor, Valeant must sell not only Paragon, which produces buttons used to make hard contact lenses, but also Pelican Products, a company Valeant bought later that is the only producer of FDA-approved vials used for shipping a certain type of finished hard lens. Even though the Pelican assets are not used to produce buttons for the three markets affected by the merger, the Commission determined that they are necessary to ensure Paragon’s continued access to the vials it needs for its finished lens business and to return competition to its pre-merger levels.

For further discussion of how the FTC fashions effective relief for anticompetitive mergers, including consummated mergers, see the Bureau of Competition’s Statement on Negotiating Merger Remedies. Note too that the proposed revisions to the FTC/DOJ Antitrust Guidelines for International Enforcement and Cooperation confirm that the agencies will seek a remedy that involves conduct or assets outside the United States if it deems that doing so is necessary to ensure the remedy’s effectiveness and is consistent with the agency’s international comity analysis. (p. 38) Comments on this or any aspect of the revised Guidelines are due by December 1, 2016.