The Role of the Failing Company Defense in Modern Era Mergers and Acquisitions

The 1980's was a revolutionary period. This was characterized by and unprecedented changes in the U.S., including the acceleration of global economic interdependence and the waning of U.S. economic might. Deregulation was in style, catalyzed by the Airlines Deregulations Act of 1978. The year 1981 ushered in Ronald Reagan as President, who intensified the government "hands off" approach. His administration not only drastically diminished the role of government but also unabashedly fostered big-business. Furthermore, the 1980's were fueled by a laissez-faire attitude that is rarely exhibited in this country, and created a wave of mergers and acquisitions unparalleled in history. During this span of time, 31,000 deals with a total value of $1.3 trillion were struck. (See Exhibit 1 for year-by-year figures.) The 1980's represented a striking departure from prior years of strict supervision. Since the late 1800's, the United States government had endeavored to limit the power of big business. Its primary concern was the maintenance of healthy competition and the prevention of monopolies or monopolistic tendencies, especially those resulting from mergers and acquisitions. In 1914, Congress enacted the Clayton Act (15 USC @ 18) to combat a variety of anticompetitive practices. Section 7 of the Clayton Act, which deals with mergers and acquisition, states that "no persons engaged in commerce or any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital...[where] the effect of such acquisition may be substantially to lessen competition, or tend to create a monopoly.