Fixes for mergers with innovation concerns hard, divestitures should involve standalone businesses, say US, EU officials

13 April 2018 7:30am

12 April 2018. By Flavia Fortes

Finding a fix for mergers with innovation concerns is very hard because it involves finding next-generation problems, and when divestitures are viable they need to be as much of a standalone business as possible, officials from the US and EU authorities said.

“The more competition is based on innovation, the more it may make the merger unfixable,” said Patricia Brink, the director of civil enforcement for the US Department of Justice's antitrust division.

Speaking at a conference* in Washington on Thursday, Brink said that the difficulty with innovation assets comes in solving next generation problems.

“It’s very difficult to craft a remedy and divestiture and have really faith that you are getting the correct assets to replace competition and future competition,” she said.

“It’s very hard to have comfort on piecemeal assets,” she said.

The more innovation is really the framework of competition between the two parties, it makes it more difficult, if not impossible to fix, said Brink. She added that conduct remedies are highly disfavored.

“I don’t think you could see a Google-ITA decision today,” she said.

The European Commission also prefers structural remedies to behavioral ones, said Carlos Mosso, deputy director general of the commission's competition directorate. And divestitures need to be as much of a standalone business as possible, he said.

Mosso said that the commission wants to reproduce a business that can continue to compete in the market “not only today, but also in the future.”

“The consensus is that the preference is for structural [remedies], and I would go further to say that we want as much as standalone divestiture as possible, because already to reproduce an innovation ecosystem with a carveout presents high risks,” Mosso said.

He said that this is why the Dow-DuPont merger remedy included the sale of the full research and development facility DuPont had in Philadelphia, and the Bayer-Monsanto remedy included the full seeds and traits and innovation facility that Bayer had.

“This was the way for the competitive pressure to be reproduced,” he said.

Mosso said that thinking about research and development is not exclusive to cases where officials have innovation concerns. In general, they want to make sure the divestiture is a standalone and viable business, he said.

“Very often even if we have focused only on one concern and on the short-term impact on prices, when we’re drafting the divestiture we will care that the entity divested can continue to reproduce this position in the future,” Mosso said.

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