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Concurrences
Revue des droits de la concurrence | Competition Law Review
Guidelines for financial
buyers of U.S. antitrust
divestitures
Legal practices
l Concurrences N° 4-2016
www.concurrences.com
Nathaniel L. Asker
[email protected]
Special Antitrust Counsel, Antitrust and Competition, Fried Frank, New York
Aleksandr B. Livshits
[email protected]
Associate, Antitrust and Competition, Fried Frank, New York
Legal practices
[email protected]
Special Antitrust Counsel, Antitrust and Competition, Fried Frank, New York
Aleksandr B. Livshits
[email protected]
Associate, Antitrust and Competition, Fried
Frank, New York
Abstract
Notwithstanding the fact that antitrust divestitures
present an excellent opportunity to acquire assets
at attractive prices, private equity buyers have
played a limited role as acquirers of antitrustmandated divestitures in the U.S. to date, with
mixed success.This article examines the U.S.
antitrust agencies’ goals and concerns in evaluating
proposed financial buyers of divestiture assets and
analyzes recent examples of both cautionary tales
and success stories, with the goal of providing
practical guidelines for financial buyers considering
competing for this unique asset class. Financial
buyers that can successfully navigate the agency
review process may find that the rewards are
significant.
Malgré le fait que les cessions d’actifs en matière
de concurrence représentent une excellente
opportunité pour acquérir des actifs à des prix très
attractifs, les fonds de private equity ont pourtant
joué un rôle limité dans l’acquisition de tels actifs
aux Etats-Unis. Cet article examine les objectifs et
les préoccupations des autorités de concurrence
américaines dans l’évaluation des offres d’achat
formulées par des acheteurs financiers, et analyse
ces problématiques à travers des exemples récents
source de succès pour certains mais aussi
avertissements pour d’autres, avec pour objectif
de fournir des lignes directrices pour les acheteurs
financiers qui envisagent d’acquérir ce type d’actifs
uniques. Les acheteurs financiers susceptibles
de répondre avec succès au processus d’examen
des agences antitrust pourraient en tirer
d’importants bénéfices.
Guidelines for
financial buyers
of U.S. antitrust
divestitures
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Nathaniel L. Asker
1. In transactions raising significant antitrust issues, divestiture of one firm’s
business in the overlap market(s) at issue can often resolve the antitrust authorities’
concerns while permitting the parties to proceed with the remainder of the deal.
Such divestitures present an excellent opportunity to acquire assets at attractive
prices.1 In addition, several aspects of these sales would appear particularly
appealing to private equity and other financial buyers:
– timelines that reward experienced buyers able to move quickly and
decisively;
– limited competition from strategic buyers due to regulatory concerns;
– opportunities to acquire attractive assets that might not otherwise
go on the market; and
– oversight from antitrust agencies seeking to ensure that the seller
provides a complete set of assets and transition services to enable
the divested business to succeed under new ownership.
2. Notwithstanding these factors, financial buyers have played a limited role
as acquirers of antitrust-mandated divestitures to date, with mixed success.
This article examines the U.S. antitrust agencies’ goals and concerns in evaluating
proposed financial buyers of divestiture assets and analyzes recent examples of
both cautionary tales and success stories, with the goal of providing practical
guidelines for financial buyers considering competing for this unique asset class.
Financial buyers that can successfully navigate the agency review process may
find that the rewards are significant.
I. Agency goals and concerns
in antitrust-mandated divestitures
3. Year after year, businesses ranging from a single pipeline pharmaceutical
product2 to hundreds of retail stores are sold to resolve the concerns of
the U.S. antitrust agencies.3 Divestiture is the preferred remedy of both the
Antitrust Division of the Department of Justice (“DOJ”) and the Federal Trade
1See U.S. Dep’t of Justice, Antitrust Div., Antitrust Division Policy Guide to Merger Remedies, at 30 (June 2011), available at http://
www.justice.gov/sites/default/files/atr/legacy/2011/06/17/272350.pdf (“[T]he Division is not directly concerned with whether the price
paid for the divestiture assets is ‘too low’ or ‘too high.’ The divesting firm is being forced to dispose of assets within a limited time frame.
Potential purchasers know this.”).
2 Smaller assets may be attractive to private equity buyers seeking to enter or expand in a particular industry through modest initial
investment or add-on acquisitions. See J. Cotterill, Private Equity Picks at Smaller Morsels, Fin. Times, Aug. 6, 2015.
3 This article focuses on divestitures driven by the U.S. antitrust agencies; additional assets are sold as a result of foreign antitrust
reviews of transactions.
Concurrences N° 4-2016 I Legal practices I Nathaniel L. Asker, Aleksandr B. Livshits I Guidelines for financial buyers of U.S. antitrust divestitures
1
Up-front buyer requirement
4. Of particular importance in the sale process is whether
the agency requires an “up-front” buyer, meaning the
merger cannot be completed until a purchaser has been
proposed by the parties and approved by the agency.
The FTC typically insists upon an up-front buyer and
the DOJ increasingly prefers them as well.5 An up-front
buyer requirement provides maximum leverage for
divestiture buyers. Merging parties remain barred from
closing their transaction until the DOJ or FTC has
approved a purchaser of the divested assets. Often, the
parties are under enormous pressure to close as they near
the termination date in the merger agreement. Where
an up-front buyer is not required, parties are able to
proceed with their merger while holding the business
to be divested separate from other operations. While
the merged firm will have additional time to market the
divested business, the sale must close prior to a deadline
imposed in the consent decree, which is publicly filed.
Agency criteria for approving
divestiture buyers
5. Any proposed divestiture buyer must be approved
by the DOJ or FTC in its sole discretion. The agencies
seek to identify buyers that will effectively replace the
competition lost as a result of the merger and serve as
strong competitors to the merged firm and other rivals
going forward. The agencies will assess a prospective
buyer’s financial viability, industry know-how, future
plans for the divested business, and capacity to research,
develop and innovate the relevant products.6 A proposed
buyer will typically meet with agency staff to present its
plans for the divested business, including financial models
and projections, employee retention and recruiting plans,
transition workstreams, strategies to grow the business
and improve underperforming assets, and identification
of key risks and mitigation planning.
2
6. The agencies have expressed concern that, in contrast
to a situation where the seller is exiting a market entirely,
sellers of antitrust-mandated divestitures have the
incentive to select buyers that will not compete effectively
in the marketplace, and sellers may be willing to forgo
a higher purchase price in order to avoid establishing
a strong competitor going forward.7 The onus is on
the merging parties, and the divestiture buyer itself, to
show that this is not the case, and that the buyer has
the incentive, resources, and experience to compete
effectively. While this is a challenge in all divestitures, the
burden can be significant in sales to financial buyers, in
part due to issues that arose recently in connection with
FTC-approved divestitures to private equity-backed
purchasers in the Hertz/Dollar Thrifty and the Albertsons/
Safeway mergers. However, given the long and varied list
of successful sales to financial buyers, both before and
after Hertz and Albertsons, these transactions do not
represent the norm.
II. Recent precedents
Hertz/Dollar Thrifty
7. In November 2012, the FTC cleared Hertz’s
$2.3 billion acquisition of rental car rival Dollar Thrifty,
subject to Hertz’s agreement to sell its Advantage Rent
A Car business and several Dollar Thrifty airport
locations to up-front buyers Franchise Services of North
America, Inc. (“FSNA”) and Macquarie Capital (USA)
Inc. At the time of the settlement, FSNA was a minor
player in the U.S. rental car business operating under the
U-Save brand. FSNA brought on Macquarie to provide
financing in return for an approximately 50% equity
interest in FSNA.8 In approving FSNA/Macquarie as a
suitable buyer, the FTC noted management’s experience
in the car rental industry and Macquarie’s committed
financial support and ability to provide additional growth
capital. Under FSNA/Macquarie ownership, Advantage
would become the fourth-largest rental car competitor in
the U.S. In addition to divesting the Advantage business,
the FTC required Hertz to lease an initial fleet of cars to
FSNA and provide transition services until FSNA was
able to obtain its own fleet.9 This lease proved fatal to
FSNA.
8. On November 5, 2013, less than one year after
announcing the settlement, FSNA’s operating subsidiary,
Simply Wheelz LLC, filed for bankruptcy protection.
In the interim, FSNA had experienced a number of
setbacks, including management turnover and financial
distress arising from the fleet lease with Hertz. FSNA
4 Antitrust Division Policy Guide to Merger Remedies, supra note 1, at 5 (“[T]he Division
will pursue a divestiture remedy in the vast majority of cases involving horizontal mergers.”).
Fed. Trade Comm’n, Bureau of Competition, Negotiating Merger Remedies, at 5 (Jan.
2012), available at https://www.ftc.gov/system/files/attachments/negotiating-mergerremedies/merger-remediesstmt.pdf (“Most merger cases involve horizontal mergers, and the
Commission prefers structural relief in the form of a divestiture to remedy the anticompetitive
effects of an unlawful horizontal merger”).
7 Antitrust Division Policy Guide to Merger Remedies, supra note 1, at 28.
5 See B. McConnell, A Hard Look at the Right Fix, Deal Pipeline, Dec. 19, 2014. The FTC
will almost always insist on an up-front buyer where the divested assets comprise less than a
complete standalone operating unit. FTC Negotiating Merger Remedies, supra note 4, at 7–8.
8 D. McLaughlin, M. Clothier and S. Forden, Hertz Fix in Dollar Thrifty Deal Fails as
Insider Warned, Bloomberg, Nov. 29, 2013, available at http://www.bloomberg.com/news/
articles/2013-11-29/hertz-fix-in-dollar-thrifty-deal-fails-as-insider-warned.
6 For additional guidance on buyer approval criteria, see Antitrust Division Policy Guide to
Merger Remedies, supra note 1, at 28–29 and FTC Negotiating Merger Remedies, supra note
4, at 10.
9 Fed. Trade Comm’n, Analysis of Agreement Containing Consent Orders to Aid Public
Comment, In the Matter of Hertz Global Holdings, Inc., File No. 101-0137, at 5, available at
https://www.ftc.gov/sites/default/files/documents/cases/2012/11/121115hertzanal.pdf.
Commission (“FTC”),4 and merging parties in turn are
often willing to agree to such sales where the divestiture
itself does not harm the business rationale for their
merger. In these situations, the merging parties and the
agency negotiate a consent decree identifying the assets
to be divested, any required transition service and supply
agreements, and the deadline by which the sale must be
completed.
Albertsons/Safeway
9. Similar issues emerged in connection with divestitures
required by the FTC in connection with Albertsons’
$9.2 billion acquisition of Safeway in 2015. Albertsons,
owned by affiliates of Cerberus Capital Management,
was required to divest 168 supermarkets to up-front
buyers approved by the FTC. The bulk of the assets,
146 stores, went to Haggen, Inc., a regional chain with
18 supermarkets in Washington and Oregon. In 2011,
Comvest Group, a Florida-based private equity firm
with $2.1 billion of assets under management, had
acquired a majority stake in Haggen from its founding
family. According to press accounts, Comvest made
the investment with the expectation that ongoing
consolidation among major supermarket chains was
likely to generate opportunities to grow the Haggen
business through acquisitions of antitrust-mandated
divestitures.13 The Albertsons/Safeway transaction
presented precisely such an opportunity. Haggen’s
chairman, also a Comvest partner, explained that
convincing Cerberus, Albertsons, and staff at the FTC
that it had the resources to expand from a small family
business to a major regional supermarket competitor
required “a ton of work.”14 Haggen enlisted Supervalu
Inc., a leading retailer and wholesale distributor, as its
grocery supplier and provider of transition services to
support the expansion.15 The FTC ultimately approved
10Petition of Franchise Services of North American, Inc. for Prior Approval
of the Sale of Simply Wheelz d/b/a Advantage, In the Matter of Hertz Global
Holdings, Inc., FTC Docket No. C-4376, at 6–7, available at https://www.ftc.gov/
sites/default/files/documents/cases/140107hertzapplication.pdf.
11 Id. at 2.
12Press Release, Fed. Trade Comm’n, FTC Approves Franchise Services of North America’s
Application to Sell Certain Advantage Rent a Car Locations to Hertz and Avis Budget Group
(May 30, 2014), available at https://www.ftc.gov/news-events/press-releases/2014/05/ftcapproves-franchise-services-north-americas-application-sell.
Haggen as a “highly suitable” purchaser.16 As a result of
the approximately $300 million transaction, Hagen grew
from 18 stores and 2,000 employees to 164 stores and
10,000 employees.
10. Despite extensive planning efforts, issues quickly arose
at the divested stores. On September 1, 2015, Haggen
sued Albertsons seeking over $1 billion in damages. In its
complaint, Haggen alleged that Albertsons engaged
in “coordinated and systematic efforts to eliminate
competition and Haggen as a viable competitor in over
130 local grocery markets in five states,” and “made
false representations to both Haggen and the FTC about
Albertsons’ commitment to a seamless transformation
of the stores into viable competitors under the Haggen
banner.”17 Albertsons responded that the suit was
without merit and merely a ploy to divert attention from
Albertsons own suit alleging that Haggen refused to pay
for $36 million in inventory at 32 of the divested stores.18
A week after it filed the suit, and less than nine months
after the FTC approved Haggen as a divestiture buyer,
Haggen filed for bankruptcy with a plan to significantly
reduce its portfolio to less than 40 stores in the Pacific
Northwest.19 The bankruptcy court later approved the
sale of 59 stores to Albertsons, including many locations
Haggen had acquired from Albertsons.20 Albertsons
also paid $5.75 million in cash and agreed to transfer
$8.25 million in unsecured claims to other creditors in the
bankruptcy in order to settle Haggen’s lawsuit. While the
failed divestitures in both the Hertz and Albertsons
transactions involved private equity-backed buyers, the
more significant commonality was the inability of small
portfolio companies to manage massive expansion, even
with significant experience in their industries. As a result,
strategic and financial buyers alike will face significant
scrutiny from the antitrust agencies if acquiring the
divestiture assets would represent a significant expansion
in the industry.
16Fed. Trade Comm’n, Analysis of Agreement Containing Consent Order to Aid Public
Comment, In the Matter of Cerberus Institutional Partners V, L.P., AB Acquisition LLC,
and Safeway Inc., File No. 141-0108, at 5, available at https://www.ftc.gov/system/files/
documents/cases/150127cereberusfrn.pdf.
17Complaint at 1–2, Haggen Holdings LLC v. Albertson’s LLC, No. 1:15-cv-00768-UNA (D.
Del. Sept. 1, 2015).
18A. Marum, Albertsons Vows to “Vigorously Defend” Itself Against Haggen’s $1 Billion
Lawsuit, The Oregonian, Sept. 2, 2015, available at http://www.oregonlive.com/windowshop/index.ssf/2015/09/albertsons_responds_to_haggen_lawsuit.html.
14Id.
19Press Release, Haggen, Inc., Haggen Files for Chapter 11 Bankruptcy (Sept. 8, 2015),
available at http://www.haggen.com/press-releases/haggen-files-chapter-11-bankruptcy;
Press Release, Haggen, Inc., Haggen Announces Plans to Exit Southwest Market (Sept. 24,
2015), available at http://www.haggen.com/press-releases/haggen-announces-plans-to-exitsouthwest-market.
15In discussing the FTC’s vetting of Haggen’s, one FTC staffer described the presence of a
financial sponsor supporting the business as a positive, noting that Haggen’s is “owned by an
investment firm and so have a fair amount of capital.”Id.
20K. Butler, Haggen Cleared to Sell 29 Core Stores to Albertson’s, Deal Pipeline,
Mar. 30, 2016, available at http://pipeline.thedeal.com/31/13512255/18905157.
t?d=1&cmpid=em:CA033016#13512255.
13W. McConnell, With a Little Help from the Feds, Haggen Goes Big Time, Deal Pipeline, Feb.
27, 2015.
cited inadequate capitalization, unfavorable terms of
the lease, and the lack of a centralized headquarters
for its management team, among factors for the failure,
and stated that Macquarie was unwilling to fund the
additional investment needed to resolve these issues.10
As FSNA pursued alternate sources of capital, Hertz
threatened to terminate the lease. Faced with the
potential loss of its entire fleet of rental cars, FSNA
sought bankruptcy protection. The FTC ultimately
approved the sale of most of the Advantage business
to The Catalyst Capital Group, a Canadian private
equity firm.11 Ten of the remaining rental car locations
were then sold back to Hertz, precisely the outcome the
FTC sought to prevent by establishing Advantage as an
independent competitor.12
3
stores.”24 In addition, senior FTC officials determined
that Sycamore presented a “robust” business plan for the
acquired assets.25
11. Notwithstanding the FTC’s experience in Hertz
and Albertsons, the agencies continue to approve
financial buyers of divestiture assets. Most recently,
the FTC approved Jianguang Asset Management Co.
(“JAC”), a Chinese private equity firm that invests in
companies in the integrated circuits industry, to acquire
NXP Semiconductors’ RF power amplifier business in
connection with the NXP/Freescale merger. NXP’s RF
power amplifier business was not a stand-alone business
within NXP, but was part of its Secure Interface &
Power division.21 Nevertheless, the FTC approved the
sale of less than a complete business unit because the
divestiture package included “everything needed for
JAC to compete effectively in the worldwide market for
RF power amplifiers.”22 The divestiture included NXP’s
manufacturing and R&D assets used for the RF power
amplifier business, patents and technologies used in the
business, and a royalty-free license to use all other NXP
patents and technologies required in the business. NXP
was not required to divest its front-end manufacturing
(wafer) assets, but the order required NXP to provide
front-end manufacturing services for a period of
60 months, until JAC can contract with a third-party
outsourcing partner. This transaction demonstrates that
a foreign private equity firm can be deemed an acceptable
divestiture buyer, and that a financial buyer may even be
approved as a purchaser of a partial business unit if the
buyer is able to demonstrate sufficient industry expertise
and a compelling business strategy that preserves the
competitive dynamics of the market.
13. Other recent examples of agency approved financial
buyers of divestiture assets include:
Dollar Tree/Family Dollar
12. The FTC also recently approved private equity
firm Sycamore Partners to acquire 330 Family Dollar
stores in connection with Family Dollar’s $9.2 billion
acquisition by Dollar Tree.23 Sycamore Partners, founded
by veterans of Golden Gate Capital, may be best known
for investments in women’s specialty retailers, including
Jones New York, Nine West, Stuart Weitzman, and
Talbots. In approving Sycamore, the FTC noted that
Sycamore’s proposed executive team had “extensive
experience operating discount general merchandise retail
21Fed. Trade Comm’n, Analysis of Agreement Containing Consent Orders to Aid Public
Comment, In the Matter of NXP Semiconductors N.V., File No. 151-0090, at 1, available
at https://www.ftc.gov/enforcement/cases-proceedings/151-0090/nxp-semiconductors-nvmatter.
22Id. at 3.
23The stores generated approximately $500 million in sales and $45.5 million in operating
income. Press Release, Dollar Tree, Inc., Dollar Tree Reaches Agreement to Sell 330 Family
Dollar Stores to Sycamore Partners Contingent on Completion of Family Dollar Merger
(May 29, 2015), available at http://www.dollartreeinfo.com/investors/global/releasedetail.
cfm?ReleaseID=915546.
4
– the FTC’s 2014 approval of KPS Capital
Partners’ acquisition of six glass container
manufacturing plants from Ardagh Group S.A.;
– the FTC’s 2013 approval of Seven Mile Capital
Partners’ acquisition of Microporous from
Polypore International;
– the FTC’s 2012 approval of Tallgrass Energy
Partners’ acquisition of natural gas pipelines
from Kinder Morgan;
– the DOJ’s 2011 approval of Gores Group’s
acquisition of Hypercom’s U.S. point-of-sale
terminal business;
– the FTC’s 2010 approval of Sterling Partners’
acquisition of funeral homes and cemeteries
from Service Corporation International;
– the DOJ’s 2009 approval of KPS Capital
Partners’ acquisition of Labatt USA from
InBev;
– and the DOJ’s 2009 approval of Warburg
Pincus’ acquisition of the Scotsman ice
machine business from Enodis plc.
III. Guidelines for
financial buyers
14. As is clear from the list above, through careful
planning and management of their interactions with the
antitrust agencies, financial buyers can make compelling
divestiture buyers. In particular, financial buyers must
address the following primary concerns.
Industry expertise
15. The agencies will evaluate a proposed buyer’s
background and experience managing firms similar to
the divested business to assess whether the buyer has
the background and know-how necessary to manage the
business as a strong competitor going forward. A financial
buyer can demonstrate the requisite know-how through
24Fed. Trade Comm’n, Analysis of Agreement Containing Consent Orders to Aid Public
Comment, In the Matter of Dollar Tree, Inc. and Family Dollar Stores, Inc., File No. 141-0207, at
4, available at https://www.ftc.gov/system/files/documents/cases/150702dollartreeanalysis.
pdf. An FTC staffer admitted that the agency remains hesitant of divestitures to private
equity buyers and that she was “holding [her] breath a little bit” regarding the Sycamore
purchase. See P. Guniganti, FTC Warier of Divestiture to Private Equity, Official Says,
Global Competition Rev., July 9, 2015.
25W. McConnell, A Q&A with Top Antitrust Enforcer Debbie Feinstein, Deal Pipeline, May 2,
2016.
NXP Semiconductors/
Freescale Semiconductor
of the business going forward.31 The agencies will also
evaluate whether the business will have access to the
credit and working capital needed to operate the business
successfully and fund expansion and R&D over the
long term. With this in mind, a financial buyer should
be prepared to demonstrate to agency staff a thorough
knowledge of the target’s current and future investment
requirements and access to the requisite capital to meet
those needs.
Robust business plan
18. The antitrust agencies will also evaluate a final
buyer’s investment timeline and exit strategy for the
divested business. A perception that a proposed financial
buyer may sell the business again in the near term is
likely to provoke concern from the DOJ or FTC for two
reasons.32 First, the agencies may express concern that
a follow-on sale presents the risk of further disruption
to the underlying business, including the potential loss
of customers and key employees, which could ultimately
diminish its competitive strength. This concern may be
mitigated where a financial buyer contemplates a longterm investment and/or exiting via an IPO. Second,
the agencies may express concern that the future buyer
could be less qualified to operate the business as a strong
competitor. To mitigate this concern, the antitrust
agencies have at times required that private equity buyers
agree to obtain agency approval prior to a follow-on
sale of the business.33 Financial buyers should keep this
possibility in mind when evaluating the acquisition, as
prior approval provisions may restrict a buyer’s ability to
conduct a wide auction for the business at exit.
16. In addition to assessing whether the buyer has
sufficient industry expertise, the agencies will review
whether the buyer has a compelling business plan for
operating the acquired assets in a manner that will
preserve the competitive dynamics of the market.
If the agency staff hears similar strategies about how
the business will be operated from multiple potential
buyers, they will likely become more comfortable with
the proposed business plan.27 Where the purchased
assets are being carved out from a larger business unit,
the financial buyer should be prepared to demonstrate
that the business could be operated on its own, without
ongoing entanglements with the seller. In addition,
where possible, the divestiture buyer should seek support
from customers of the acquired business. The antitrust
agencies frequently seek input from customers of the
divested business on whether a potential buyer will be a
workable option as a supplier.28 A customer is more likely
to provide a favorable response if the buyer has already
explained its strategy for operating the business before
the FTC calls.
Capitalization
17. The agencies will assess whether a proposed buyer
has the financial capability to operate the business
effectively over the long term. In doing so, the agencies
will seek to confirm that the buyer has access to sufficient
equity and debt financing to fund the acquisition and
satisfy any immediate capital needs of the divested
business.29 In fact, agency staff may ask to interview
the lender(s) directly.30 Financial buyers may choose
conservative capital structures, with significant equity
financing serving as evidence of the financial strength
26FTC Negotiating Merger Remedies, supra note 4, at 13. This view will vary by industry; in
certain sectors such as pharmaceuticals, the antitrust agencies are likely to demand direct
experience in the market.
27See McConnell, A Q&A with Top Antitrust Enforcer Debbie Feinstein supra note 25.
28For example, the FTC explained in the Analysis of Agreement Containing Consent Orders
to Aid Public Comment for NXP Semiconductors that potential customers had confirmed
to the FTC that the divestiture buyer would be a workable option as a supplier.
29Antitrust Division Policy Guide to Merger Remedies, supra note 1, at 5.
30FTC Negotiating Merger Remedies, supra note 4, at 7–8.
existing or prior investments in the industry and prior
executive positions held by the proposed management
team. The FTC has stated that a buyer need not have
direct experience operating a business in the same market
as the target, and that buyers can show the requisite
expertise through participation in related markets.26
In addition, financial buyers that intend to retain all or
most of the existing employees of the business should
emphasize to agency staff that these individuals will stay
on and are best positioned to help the buyer manage and
grow the business going forward.
Exit strategy and timeline
19. While satisfying agency concerns relating to these
topics is crucial to the approval process, financial buyers
should also highlight their advantages over strategic
buyers. For example, private equity buyers are likely able
to point to numerous successes in acquiring, growing,
and improving operations at targets across a wide range
of industries. In addition, the management team’s equity
investments in the divested business serve to create
31See, e.g., Application for Approval of Proposed Divestiture, In the Matter of Kinder Morgan,
Docket No. C-4355 (FTC Sept. 28, 2012), available at https://www.ftc.gov/sites/default/
files/documents/cases/2012/10/121005kindermorganapplication.pdf.
32For example, in 2001 the FTC undertook an “extraordinarily rigorous analysis” of private
equity firm J.W. Childs Equity Partners as divestiture buyer of the Meow Mix and Alley
Cat brands of cat food sold in connection with Nestle’s acquisition of Ralston Purina
Company. Commissioner Anthony stated: “In most cases, I would prefer to see divested
assets go to a company with a stronger likelihood of operating the business for the long
term.” See Concurring Statement of Commissioner Mozelle W. Thompson, In the Matter
of Nestle S.A./Ralston Purina Co., Docket No. C-4028, available at https://www.ftc.
gov/sites/default/files/documents/cases/2002/02/nestlethompson.htm; and Statement of
Commissioner Sheila F. Anthony, In the Matter of Nestle S.A./Ralston Purina Co., Docket
No. C-4028, available at https://www.ftc.gov/sites/default/files/documents/cases/2002/02/
nestleanthony.htm.
33See, e.g., Decision and Order, In the Matter of Nestle S.A./Ralston Purina Co., Docket
No. C-4028, at ¶ VI.A, available at https://www.ftc.gov/sites/default/files/ documents/
cases/2002/02/nestledo.pdf (requiring FTC approval prior to any sale within five years of
the date of the order); Decision and Order, In the Matter of Dollar Tree, Inc., and Family
Dollar Stores, Inc., Docket No. C-4530, at ¶ VI.A, available at https://www.ftc.gov/system/
files/documents/cases/150917dollartreedo. pdf (requiring FTC approval prior to any sale
within three years of the date of divestiture of any divestiture assets to Dollar Tree, Inc. or
substantially all of the divestiture assets to any person).
5
either that no strategic buyers are interested in acquiring
the assets or that the financial buyer is more capable of
growing the business than potential strategic buyers.
20. With careful planning, financial buyers can navigate
the DOJ and FTC review processes and serve as
compelling acquirers of divestiture assets. n
34See Fed. Trade Comm’n, A Study of the Commission’s Divestiture Process, at 17 n. 26 (1999),
available at https://www.ftc.gov/sites/default/files/attachments/merger-review/divestiture.pdf.
6
strong economic incentives to compete vigorously in the
marketplace, so that these individuals and other investors
will be rewarded with a return on their investment.
The FTC has made clear that it may disapprove a
marginally acceptable buyer if it believes a better buyer
might be available.34 Therefore, a financial buyer should
aim to work cooperatively with the seller to demonstrate
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