June 1, 2020

Antitrust: Failing Firm Defense? You’ve Got Some Persuading to Do. . .

Under current market conditions, it probably wouldn’t be a big surprise to see more than a few potential M&A transactions attempt to surmount potential antitrust concerns by asserting a “failing firm” defense. In a recent blog, the FTC’s Bureau of Competition let everyone know that they’ve heard this one before – and that if you decide to go down this path, you’d better be prepared to make a compelling case.

This excerpt says that if the agency thinks you’re “crying wolf” with a failing firm defense, it will do some significant damage to your credibility:

Finally, a cautionary note for those advising and representing merging parties: think twice before making apocalyptic predictions of imminent failure during a merger investigation. Candor before the agency remains paramount, and it has been striking to see firms that were condemned as failing rise like a phoenix from the ashes once the proposed transaction was abandoned in light of our competition concerns.

No doubt some of these recoveries are due to the tireless efforts of the firm’s leadership and employees to turn around a struggling business. But other examples have suggested to us that a serious effort to assess the standalone future of the company was not undertaken before representing that the failure of the merger would result in the imminent demise of that company. Counsel who make too many failing-firm arguments on behalf of businesses that go on to make miraculous recoveries may find that we apply particularly close scrutiny to similar claims in their future cases.

John Jenkins