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

Published by a LexisNexis Competition expert
Practice notes

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

Published by a LexisNexis Competition expert

Practice notes
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An assessment of the competitive effects 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; the firms’ level of debts; and whether the activities that are 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 due to, for example, its financial losses and level of debt or its core products or technology having become obsolete. 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 exit the market altogether. This argument has come to be known as the ‘failing firm’ (or ‘existing firm’) defence (and the

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Jurisdiction(s):
United Kingdom
Key definition:
Merger control definition
What does Merger control mean?

The merger control rules of the UK are contained in the enterprise Act 2002, as amended. Under the UK merger control rules, the competition and markets authority has jurisdiction to review both completed and anticipated merger transactions provided there is a ‘relevant merger situation’. The UK rules do not generally apply to mergers in relation to which the European Commission has exclusive jurisdiction under the EU Merger Regulation. Where the transaction falls within the scope of any national or supranational (eg the EU or COMESA) merger control rules, it is common for the parties to the agreement to agree that the transaction shall be conditional upon merger control approvals having been received and no relevant competition authority having raised objections to the transaction (Enterprise Act 2002).

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