Reassessing Mix-And-Match Divestitures

This article was originally published by Competition Policy International here. The views expressed in this article are the sole responsibility of the authors and cannot be attributed to Compass Lexecon or any other parties.

Introduction

Merger remedies aim to address the anticompetitive effects of mergers while preserving the pro-competitive efficiencies. Among merger remedies, divestiture has been the most common and most preferred one in many jurisdictions for the past several decades.

Although the agencies do not define mix-and-match divestitures precisely, a divestiture of a customized package of assets assembled from both merging firms, rather than one business unit from one merging party, would be considered by the antitrust agencies to be a “mix-and-match” divestiture. The agencies tend to look at these with skepticism on the grounds that they may be less likely to preserve competition than the divestiture of a single ongoing business.

In this article, we rely on a broader definition of mix-and-match divestiture. We define a divestiture to be mix-and-match if the assets sold have at least one of the following two characteristics: the assets are from multiple sellers or sold to multiple buyers. Additional complexity may arise when the assets operate in multiple product or geographic markets, such that they may not necessarily operate together post-merger, but we do not consider this aspect alone to make a divestiture mix-and-match.

A recent example of a mix-and-match divestiture occurred in the acquisition of Amedisys by UnitedHealth Group. In that transaction, the divestiture package negotiated with the U.S. Department of Justice included both mix-and-match characteristics: first, the divested assets were drawn from two sellers—the acquirer, UnitedHealth Group (more specifically, its affiliate LHC), and the target, Amedisys. Second, the assets were sold to two different buyers, BrightSpring Health Services and Pennant Group. In addition, the divested assets operated in many geographic markets and primarily in two distinct product markets: home health and hospice services.

The antitrust agencies have expressed several concerns regarding mix-and-match divestitures. In broad terms, the agencies are concerned that some aspects of mix-and-match divestitures make the divested assets less likely to be successfully operated by the buyers and therefore less likely to preserve competition. These are legitimate competition issues that warrant careful scrutiny in any particular case. At the same time, an assessment of mix-and-match divestitures should proceed with a balanced understanding that they entail not only potential drawbacks but also potentially meaningful advantages. While much of the existing commentary focuses on the downsides, this discussion complements that perspective by highlighting some relatively neglected upsides. Namely, mix-and-match divestitures broaden the sets of available divestiture buyers and assets that the merging parties and the agencies can use to design effective remedies.

There are many examples across jurisdictions of the use of mix-and-match divestitures, presumably because these achieve the goals of remedies and have other advantages. In addition to the UnitedHealth Group-Amedisys case mentioned above, recent cases in the United States and the European Union include:

• United States v. Waste Management, Inc., where many trash transfer stations and landfills of both Waste Management, Inc. and Advanced Disposal Services, Inc. were divested to GFL Environmental, Inc.
• United States v. Nexstar Media Group., Inc., in which certain TV stations of Nexstar were divested to Circle City Broadcasting, certain TV stations of Tribune to Scripps, and certain TV stations of Nexstar and Tribune to TEGNA.
• Boeing’s acquisition of Spirit AeroSystems Holdings, Inc., which included divesting Spirit’s businesses that supply Airbus to Airbus, and divesting Spirit’s site in Malaysia to Composites Technology Research Malaysia Sdn. Bhd.

In all these mergers, the antitrust agencies in the relevant jurisdictions allowed the transaction to proceed, stating that the remedies fully addressed the competition concerns. We infer that, at least in these cases, the advantages of mix-and-match divestitures outweighed any disadvantages, which we turn to next.

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