Real deadlines and real consequences

Recently, Alimentation Couche-Tard and CrossAmerica Partners (collectively ACT) agreed to pay a $3.5 million civil penalty to settle allegations that they violated a Commission divestiture order that was designed to prevent their merger from harming consumers.  A close read of the Commisson’s action in this case yields some timely advice for any company that is subject to a divestiture order.

Any deadline in a Commission order is a “real” deadline, and failure to meet the deadline can have real consequences.  That means that if the order requires a divestiture by June 15, you must have completed the divesture, including closing, by June 15.  Under applicable case law, failure to divest on time is a per se violation of an FTC order.  The Commission has the discretion to seek civil penalties for any failure to divest by a deadline contained in an order. Additionally, each violation of the order is a separate offense, and maximum potential penalties are calculated for each day of each violation.

Build in ample time for obtaining Commission approval for the divestiture sale prior to the deadline.  This will take about two months.  Under the Commission’s Rules, an application for approval of a divestiture is placed on the public record for comment for 30 days.  Bureau of Competition management and the Commission will also need time to review the application (and any comments) and decide whether to approve it.  As a rule of thumb, you should allow at least two weeks for Bureau management to review the staff recommendation after the 30-day public comment period for the application, and at least two additional weeks after that for the Commission to conduct its review and vote to approve the application.   

If a respondent needs extra time, Commission Rule 4.3(b) provides that the Commission can extend a deadline upon a showing of good cause to grant an extension.  Respondents should file any such motion before the divestiture deadline.  The Commission has consistently held respondents to a high standard for granting an extension, because an extension prolongs the period of uncertainty for maintaining or restoring competition in the markets affected by the merger, and forfeits the Commission’s right to seek civil penalties or other relief for missing the original deadline.  Granting an extension of time is solely within the discretion of the Commission, and seeking an extension does not guarantee it will be approved.  Respondents must continue to try to divest as soon as possible. 

Contact Compliance staff immediately to report divestiture issues.  To ensure the divestiture process remains on track, respondents should make it a practice to engage with staff early in the process and as often as needed.  If you reach out at the first sign of trouble, staff can provide guidance or propose solutions; but if you wait, it may be too late to resolve the problems and stay on track to meet the divestiture deadlines.  Expect that Commission staff will seek explanations for any problems, as well as proposed solutions for timely divestiture. 

Compliance reports must identify issues that arise during the divestiture process.  This is a related but important reminder: the whole point of providing periodic compliance reports is to keep us informed of steps that are being taken to fully comply with the order.  If the respondent is running into issues, say so.  The same goes if all is well— be clear on which action items have been completed and which ones remain to be done.  Compliance reports are an important opportunity to alert the Commission to any problems and concerns about meeting the divestiture deadline.  And if something comes up, don’t wait until the next compliance report to tell us.  Reach out to staff immediately to report and discuss any issues or problems.  As alleged in the Commission’s complaint against ACT, ACT’s compliance reports did not contain sufficient information about what the company was doing to stay on track with the required divestitures, which led staff to require supplemental compliance reports with the needed details.  Inadequate compliance reports may constitute separate violations of the order, which could lead to additional civil penalties, as it did in ACT. 

Plan ahead for a timely divestiture and, as with any deal, expect bumps in the process.  Under FTC orders, respondents are required to divest the assets in good faith and at no minimum price.  There are no guarantees that the divestitures will go easily or as planned, so the respondents should be prepared to adapt as necessary to changing conditions in order to ensure timely divestitures.