Global Competition Law is primarly a practitioner's guide presenting the most salient aspects of the major competition laws country by country, giving an overview of their structure and most charasteristic elements.
Global Competition Law also provides insight into possible future developments in the field.

Global Competition Law

In appraising an acquisition, the FTC and the DoJ have accepted the failing firm defense, according to which absent the acquisition, the failing firm would exit the market where three criteria are satisfied: the firm would not be able to meet its financial obligations in the near future; it would not be able to successfully reorganize under Chapter 11 of the Bankruptcy Code; and, it has made a goo …

Failing firm defense

   Horizontal mergers or acquisitions occur between competitors operating at the same level of the market structure and within the same product and geographic market area. Because horizontal mergers may result in high market concentration, increasing the likelihood of collusion or reducing pressure to innovate, such mergers are closely reviewed. 

Definition

The 2010 joint Horizontal Merger Guidelines describe the analysis the agencies will employ in determining whether a horizontal merger is likely “to create, enhance, or entrench market power or to facilitate its exercise”.

Pursuant to the 1992 Guidelines, a five-step process was used to assess mergers. The 2010 Guidelines depart from this approach, favoring a focus on the more significant factors on a caseby-case basis. Though the “uniform application” of the previous “single methodology” has been abandoned, the factors of assessment previously used are not deprived of all relevance.

Thus, the agencies may still determine whether the merger would significantly increase concentration in the relevant market. In evaluating market concentration, the Guidelines use the HerfindahlHirschman Index (HHI), which calculates statistically whether the post-merger market could be considered not concentrated, moderately concentrated or highly concentrated.

The agencies must consider whether the merger, based on market concentration and other factors, may adversely affect competition. The 2010 Guidelines provide a non-exhaustive list of categories of evidence that the agencies, in their experience, have found most informative in predicting the likely competitive effects of mergers. Thus, the agencies will consider the actual effects observed in consummated mergers (such as price increases or other changes adverse to customers), make direct comparisons based on experience, observe the merging parties' market shares in a relevant market, the level of concentration, and the change in concentration caused by the merger, consider whether the merging firms have been, or likely will become absent the merger, substantial head-to-head competitors and whether the merger may lessen competition by eliminating a “maverick” firm.

Likewise, the agencies will assess whether entry into the market is timely, likely and sufficient to counteract the anticompetitive effects of the transaction. Thereafter, they may consider whether there will be efficiency gains that cannot reasonably be achieved through other means and whether either party would be likely to fail and exit the market absent the merger. The efficiency defense and failing firm defense are discussed below.

Agencies Guidelines

   Under US law, in some cases the anticompetitive effects of a merger may be offset by the efficiencies it generates. Efficiencies must be verifiable, merger specific and must not arise from anticompetitive reductions in output or services. Pursuant to the 2010 Guidelines the agencies will not challenge a merger if cognizable efficiencies are of a character and magnitude such that the merger is not likely to be anticompetitive in any relevant market. They provide the example of shifting production among facilities formerly owned separately as a type of efficiency that can be verified, is specific to the merger, and is not likely to result in an anticompetitive reduction in output. On the other hand, efficiencies relating to research and development may be difficult to verify, and those relating to procurement, management or capital cost are less likely to be merger specific.

Efficiency defense

In appraising an acquisition, the FTC and the DoJ have accepted the failing firm defense, according to which absent the acquisition, the failing firm would exit the market where three criteria are satisfied: the firm would not be able to meet its financial obligations in the near future; it would not be able to successfully reorganize under Chapter 11 of the Bankruptcy Code; and, it has made a good faith effort to elicit reasonable alternative acquisition offers that pose a lesser danger to competition. If the agency concludes that the market would not be worse off post-merger than it would be if the merger were blocked and the assets leave the market, then there is a likelihood that the merger will not be challenged, or that an administrative action before the FTC will not be permitted. Similar arguments may be made for failing divisions.

Global Competition Law

1476. Failing firm defense

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Les notions juridiques connexes

1476. Failing firm defense

Demandez un accès gratuit au contenu exclusif Livv – juristes d’entreprise

Les notions juridiques connexes

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise