Merger Review of Firms in Financial Distress

15 Pages Posted: 26 Mar 2009 Last revised: 27 Mar 2009

See all articles by Ken Heyer

Ken Heyer

U.S. Department of Justice

Sheldon Kimmel

Government of the United States of America - Antitrust Division, Competition and Policy Section

Date Written: March 1, 2009

Abstract

With the increased number of firms that are in some form of serious financial distress, once financing becomes more readily available to potential acquirers we might expect an increase in both the number and share of mergers where at least one of the parties is having difficulty staying afloat independently. This raises the importance of the policy question as to the appropriate standard to apply to such mergers. This paper shows that this standard - striking the best balance between the efficiency benefits and the potential anti-competitive effects that a merger might produce - is the same one given in the Merger Guidelines for any merger. Further, we show that requiring money-losing firms to satisfy the conditions demanded by the Guidelines "Failing Firm Defense" is appropriate even when the overall economy is going through very difficult times.

We explain also that when the conditions required by the failing firm defense are satisfied, a proposed acquisition cannot be intended to generate an anticompetitive outcome and must be expected by the acquiring firm to generate efficiencies. This inference is shown to be not only economically sound, but also to be consistent with the Supreme Court decision in which the Court introduced the failing firm defense as a variety of the efficiency defense that it accepted in that case.

Suggested Citation

Heyer, Ken and Kimmel, Sheldon, Merger Review of Firms in Financial Distress (March 1, 2009). Available at SSRN: https://ssrn.com/abstract=1368789 or http://dx.doi.org/10.2139/ssrn.1368789

Ken Heyer

U.S. Department of Justice ( email )

950 Pennsylvania Avenue, NW
Washington, DC 20530-0001
United States

Sheldon Kimmel (Contact Author)

Government of the United States of America - Antitrust Division, Competition and Policy Section ( email )

#10,000 BICN
950 Pennsylvania Ave. NW
Washington, DC 20530-0001
United States

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