Saturday, March 28, 2009
Posted by D. Daniel Sokol
Yesterday at the ABA Antitrust Section Spring Meeting, I bumped into DOJ superstar Ken Heyer prior to my session. Ken let me know that his new paper with Sheldon Kimmel (also of DOJ), Merger Review of Firms in Financial Distress, is now available on the web. As another plug for Ken, I had him speak to my antitrust class two years ago where he did a spectacular job. Take note antitrust professors that Ken is available to entertain in class and at Bar Mitzvahs.
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.