FTC Clarifies "Failing Firm" Defense

Earlier this week, the Federal Trade Commission (FTC) published an article that offers guidance on the "failing firm" or "flailing firm" defense often invoked in the hospital merger context.  The article, written by Debbie Feinstein and Alexis Gilman of the Bureau of Competition, clarifies the circumstances under which this defense is and is not available.

At the outset, Feinstein and Gilman point out the basic requirements for establishing a failing firm defense, as set forth in § 11 of the Horizontal Merger guidelines:

1. the company is unable to meet its obligations as they come due;
2. the firm would not be able to reorganize successfully in bankruptcy; and
3. it has made unsuccessful good-faith efforts to elicit reasonable alternative offers that would keep its assets in the relevant market and pose a less severe danger to competition than does the proposed merger.