The ‘failing firm’ defence in EU and UK merger control
The ‘failing firm’ defence in EU and UK merger control

The following Competition practice note provides comprehensive and up to date legal information covering:

  • The ‘failing firm’ defence in EU and UK merger control
  • Origins and development of the 'failing firm' defence
  • Kali Und Salz
  • Merger guidelines
  • UK approach
  • Establishing the 'failing firm' defence
  • Olympic/Aegean (M.5830)
  • Nynas/Shell/Harburg Refinery (M.6360)
  • Aegean/Olympic II (M.6796)
  • The European Commission’s approach
    • More...

The ‘failing firm’ defence in EU and UK merger control

Assessment of the competitive effect of a merger involves examining the degree to which the merging firms are close and effective competitors of each other. This judgment must be forward-looking, considering how competition might change in future years. Relevant factors include: possible obsolescence of products; the state and development of any key technology; the resources of the firms; their level of debts; and whether the activities, the subject of the merger are core or peripheral.

At its most acute, it may be that one of the merging firms is simply unlikely to be able to continue in business in the future, for example, because of its losses and level of debt or its core products or technology having become out of date. In such a case the acquiring company will argue that its target is or, over the appropriate future horizon, will not be an effective competitor or will abandon the market altogether. This plea has come to be known as ‘the failing firm’ defence (and the merger itself may sometimes be described as a ‘rescue’ merger).

Origins and development of the 'failing firm' defence

The ‘failing firm’ defence was first accepted in the US under strict conditions. Initially, however, the European Commission questioned its appropriateness and relevance in merger analysis. Likewise the UK Monopolies and Mergers Commission

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