Growing use of settlement talks during litigation could lead to fewer deals being abandoned in US after a block

Growing use of settlement talks during litigation could lead to fewer deals being abandoned in US after a block

A recent trend of merger-settlement talks after deals have been challenged in the US could lead to fewer transactions being abandoned after a block because of the prospect of a consent decree after litigation. In the past, most companies avoided the discussion in court, abandoning the deal after a suit, but recent developments in cases involving the Intercontinental Exchange-Black Knight, Assa Abloy-Spectrum Brands and Amgen-Horizon Therapeutics deals show that while the US antitrust agencies may not accept remedies during the merger review process, they may ultimately agree to commitments in litigation.

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29 August 2023
By Flavia Fortes and Serafina Smith

A recent trend of merger-settlement talks after deals have been challenged could lead to fewer transactions being abandoned after a block because of the prospect of a consent decree after litigation.

In the past, most companies avoided the discussion in court, abandoning the deal after a suit, but recent developments in cases involving the Intercontinental Exchange-Black Knight, Assa Abloy-Spectrum Brands and Amgen-Horizon Therapeutics deals show that while the US antitrust agencies may not accept remedies during the merger review process, they may ultimately agree to commitments in litigation.

ICE and Black Knight said Friday they’ve entered into an agreement with Federal Trade Commission staff to settle concerns with their transaction. If it's approved by the full commission, the consent decree would be the first for the agency since Lina Khan became the FTC’s chair.

ICE and Black Knight announced a plan to expand their proposed divestiture to include an additional business, Optimal Blue, a week before the start of a scheduled preliminary injunction hearing in the Northern District of California.

The companies had previously announced plans to divest Empower, Black Knight’s loan origination system, two days before the deal was blocked in March. The FTC’s administrative complaint specifically noted that the divestiture was insufficient without the inclusion of Optimal Blue, which the agency said operated in tandem with Empower.

The preliminary injunction hearing was first postponed and then ultimately dismissed as the additional divestiture offer brought the companies and the FTC to the negotiating table.

ICE and Black Knight probably wouldn’t have divested Optimal Blue had it not been for months of litigation with the FTC.

With the new administration’s stricter position to closely scrutinize proposed remedies, companies have been building in time to litigate and go to court in the timelines for their deals.

Partly because of the agencies’ recent string of losses in court, but also partly because of the possibility of resolving concerns after the deal is litigated, companies are more willing to litigate and haven’t been deciding to abandon their transactions after an enforcement action.

Both the FTC and Department of Justice have been open to discussing with the parties ways to address their concerns after a decision to challenge a transaction, which encourages more parties to consider their odds before abandoning a transaction.

The DOJ also settled a case last May after pressure from a judge in federal court in the Assa Abloy case. In that case, the parties’ proposed remedy was expanded as a result of litigation to include additional assets that the DOJ had alleged could result in entanglements between the merged firm and the divestiture buyer.

A DOJ official said the agency was able to extract a better remedy from the parties than what they had offered prior to litigation, while emphasizing that it was up to the merging parties and not the enforcer to propose adequate settlements that cure anti-competitive concerns.

The settlement in the Assa Abloy case came partway through a trial in federal court, after US District Judge Ana Reyes expressed concern the DOJ had walked away from earlier settlement talks, and encouraged the agency and the companies to come to an agreement.

In mergers challenged by the FTC, the suggestion to settle may come from a federal judge or an administrative law judge, who may be conducting proceedings in parallel with the federal process. Though the findings of the administrative law judge have been demoted to a mere recommendation from an initial decision, the ALJ can still be successful in getting both sides to talk, as happened in Amgen-Horizon.

Last week, Amgen, Horizon and the FTC asked for a delay in the administrative proceedings before the FTC’s in-house court, as both sides said they believe it would be appropriate to take steps to allow for discussion with the commission regarding the proper resolution of the matter.

The window for remedy discussions was opened after the agency’s ALJ urged the parties to consider settling in a July status conference, FTC staff acknowledged.

A request to delay the administrative proceeding until after Sept. 18 was approved by the commission on the same day. The preliminary injunction hearing in the Northern District of Illinois is still scheduled to start on or around Sept. 13, but the removal from adjudication means the previously scheduled Nov. 8 administrative trial has been put on hold.

The FTC had rejected the parties’ remedy proposal, in which the companies made commitments not to bundle their products, before the lawsuit. Besides being a behavioral remedy, which the agency has said it will rarely accept, the FTC said the companies’ “bare commitment not to bundle” Amgen drugs wasn’t enough to resolve competition concerns, as the drugmaker could find other ways to restrict competition.

The FTC also said Amgen’s proposed solution could “grow stale” as negotiations and contracts in the pharmaceutical industry evolve.

Yet staff are now signaling it might also be desirable not to litigate, and to find a way out quickly.

The latest report on merger trends from law firm Dechert found that over the last four quarters of the Biden administration, deal abandonments increased as the US antitrust agencies’ stance on settlements led to an impasse on consent decrees.

Following the ICE-Black Knight settlement and a possible similar consent decree in the Amgen-Horizon case, however, there could be a coming shift in those statistics.

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