Cutting the Financial Fat From the Failing Firm Defense: Refocusing the Failing Firm Defense on Antitrust Law

(Excerpt) This Note proposes that the failing firm defense be strengthened to an “Assets Exiting Defense,” which would allow an otherwise anticompetitive merger to go forward only if there are no other alternative purchasers that would make the acquisition less anticompetitive and if the target firm’s assets would exit the relevant market without the acquisition. A stronger “Assets Exiting Defense” that focuses exclusively on antitrust principles is necessary because in a distressed economy, the current failing firm defense could become an escape hatch for anticompetitive transactions involving firms that are only in financial distress. This Note argues that the assets exiting the market requirement is crucial for antitrust purposes, that the requirement has not been consistently considered by Antitrust Regulators, and that removing it from the list of elements in the 2010 merger guidelines makes the failing firm defense easier to use by firms only in financial distress. Part I provides an overview of the failing firm defense and its history. Part II explains the conceptual underpinnings of the failing firm defense and how the elements of the defense have been analyzed. Part III examines the application of the 1992 Merger Guidelines version of the failing firm defense in the Trans World Airlines (“TWA”) merger with American Airlines and the future application of the defense after the newly created 2010 Merger Guidelines. This Part concludes that Antitrust Regulators have been allowing firms that are only financially distressed to use the defense, as opposed to firms that are failing in the antitrust sense. Part IV proposes using an “Assets Exiting Defense” to replace the current failing firm defense. An “Assets Exiting Defense” would ensure that Antitrust Regulators focus exclusively on antitrust principles and do not apply the defense too broadly to include anticompetitive transactions involving firms only in financial distress. The purpose of the defense should be to protect competition, not to protect firms from failing in a distressed economy