Competition Review In The Pandemic: Steps To Assess A Merger Success

• Published date: 26 October 2020
• Subject Matter: orporate/Commercial Law, Anti-trust/Competition Law, M&A/Private Equity, Antitrust, EU Competition
• Law Firm: Mayer Brown
• Author: Mr Daniel T. Fenske

Covid-19 economic conditions are challenging, but merely claiming a merger is necessary to survive isn't enough. Mayer Brown LLP antitrust partner Daniel T. Fenske says companies and their attorneys need to prove that economic conditions justify the transaction, and he offers some practical steps to help maximize the chances of success.

Covid-19 has brought iconic companies to their knees. Many predict a coming wave of failures in hard-hit industries such as commercial real estate, hospitality, and travel. These economic conditions create challenges'but also opportunities for companies and investors that are thinking strategically.

In assessing whether to make a move, you'll need to understand when economic conditions may be advantageous in shepherding a transaction through regulatory approval.

The antitrust rules governing mergers and acquisitions apply with full force during a down economy. But economic conditions can impact the extent to which a transaction may harm competition. For example, if a firm and its assets would exit the market without a merger, then the merger is unlikely to have anti-competitive consequences.

Poor economic conditions typically impact merger analysis through the 'failing firm' defense. Many jurisdictions, including the U.S., U.K., and EU, recognize versions of this defense, which generally focuses on two issues: (1) Is the target firm on the brink of a failure that cannot be remedied through a bankruptcy reorganization? and (2) Has the firm sought alternative transactions that do not raise the same anticompetitive concerns?

Beyond the failing-firm defense, poor economic conditions may create pro-competitive efficiencies that would not otherwise exist. For example, if credit markets freeze, a merger of a stronger rival with a weaker one could provide access to capital needed to compete or expand.

Regulatory officials will look with a jaundiced eye at any claim that the economic conditions justify a transaction that otherwise might harm competition. As a senior Federal Trade Commission official recently warned, the agency 'will not relax the stringent conditions that define a genuinely 'failing' firm' and 'will not relax[] the intensity of our scrutiny or the vigor of our enforcement efforts' in response to the pandemic.

Steps to Help Maximize a Merger Success

Nonetheless, regulators have also made clear that antitrust 'analysis must always reflect market realities, including financial distress at the industry and/or firm...