Merger Review of Firms in Financial Distress

Posted by D. Daniel Sokol

Ken Heyer (DOJ) & Sheldon Kimmel (DOJ) examine Merger Review of Firms in Financial Distress.

ABSTRACT: In recessions, we expect to see an increase in both the number and share of mergers where at least one of the parties is having difficulty independently staying afloat. This raises the importance of adopting a sound framework for analyzing merging firms in some form of financial distress.

This paper concludes that, while it can be hard to evaluate a failing firm defense under the Merger Guidelines, the principles underlying the test are generally sound, even when the overall economy is going through very difficult times. The recent severe downturn may lead to more proposed mergers between financially distressed firms, but it does not imply that looser standards ought to be applied when evaluating them