'Apocalyptic' Virus Merger Args Won't Work, FTC Official Says

By Bryan Koenig
Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.

Sign up for our Cannabis newsletter

You must correct or enter the following before you can sign up:

Select more newsletters to receive for free [+] Show less [-]

Thank You!



Law360 (May 27, 2020, 6:50 PM EDT) -- The head of the Federal Trade Commission's competition bureau warned merging parties on Wednesday that "failing firm" defenses of otherwise anti-competitive transactions will continue to fall on skeptical ears amid the COVID-19 pandemic and its economic fallout.

While more merging parties are likely to be making such assertions in the months and years to come, Bureau of Competition Director Ian R. Conner said in a blog post that the strict standards by which those defenses are assessed will remain unchanged. Conner also issued "a cautionary note" for the attorneys representing those companies in front of antitrust enforcers.

"[T]hink 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," Conner said.

Conner continued that some of the recoveries are likely due to the turnaround efforts of company leadership and workers. But in other examples, Conner said that there appeared to have been no "serious effort to assess the standalone future of the company" before attorneys told enforcers that a failure to consummate the merger in question would yield "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," Conner said.

Wednesday's blog post is not the first time that U.S. antitrust enforcers have recognized a likely uptick in failing firm defenses to come as companies assert that the pandemic's financial impacts override traditional concerns about a deal's anti-competitive effects.

FTC Commissioner Noah J. Phillips noted in a videocast released late last month that the defense is a difficult argument to make, and enforcers are "always skeptical" of such claims.

No such uptick has yet materialized, according to Conner, who reiterated the observation that merger filings have actually dropped "significantly" during the pandemic, which as of Wednesday had killed more than 100,000 people in the U.S.

The pandemic has yet to be mentioned as a deciding factor in any public U.S. merger decision, while United Kingdom antitrust officials have said it helped tip the scales toward approval of Amazon's planned minority investment in Deliveroo but could not overcome anti-competitive concerns over a tie-up between athletic fashion retailers.

Enforcers in the U.S. and elsewhere, including Conner, have also been adamant that the pandemic won't change the way they evaluate mergers.

For failing firm defenses, that means a heavy skepticism, with Conner noting Wednesday that the competition bureau "rarely" finds enough evidence to back those assertions.

"We will continue to apply the test set out in the [merger] guidelines and reflected in our long-standing practice, and in doing so, we will require the same level of substantiation as we required before the COVID pandemic," he said.

Yet the bureau has seen "a surprising number" of those claims over the years, made even in times of economic boom, according to the blog post.

"Saying it doesn't make it so: if you want the bureau to accept such an argument in your case, you had better actually be failing, and able to prove it," Conner said.

Proving it, he said, means showing that absent the merger, and only this particular transaction, a company would not just shutter but its assets would be completely "dismantled or redeployed for use outside the relevant market."

--Additional reporting by Matthew Perlman and Nadia Dreid. Editing by Nicole Bleier.

For a reprint of this article, please contact reprints@law360.com.

Hello! I'm Law360's automated support bot.

How can I help you today?

For example, you can type:
  • I forgot my password
  • I took a free trial but didn't get a verification email
  • How do I sign up for a newsletter?
Ask a question!