Vol 11 (2014) - Issue 2

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The Crisis is Finally Biting! The Response of the EU Merger Control Regime to the Need for Corporate Restructurings

Introduction
The recent financial crisis has illustrated the unprecedented difficulties that companies faced as well as the initiatives that were adopted at corporate and government level in order to mitigate the adverse impact of the crisis.
A strategic response for struggling firms and one of the means of implementing a successful debt restructuring process is to combine or merge in order to achieve competitively necessary efficiencies. Either a failing firm within a booming industry or firms in a distressed industry will choose to combine, merge, acquire, be acquired, or choose to sell loss-making divisions in order to enhance the firm’s viability and profitability. Given these wrenching transformations, the applicability and importance of the failing firm defence and failing division defence might be crucial.
Particularly, it will deal with the implications of the failing firm defence on corporate debt restructuring in the European Union (EU). The reason for choosing these jurisdictions is that the EU has developed merger legislation and an extensive practice on the topic.
The EU has specific criteria for assessing the failing firm defence argument. The satisfaction of these criteria is an essential factor for a concentration which is likely to have anticompetitive effects, to be allowed to proceed. In addition each of the above jurisdictions has its own legislation regarding merger assessment. It would be necessary for purposes of this paper and for a complete understanding of the implications of merger legislation, as they are identified through the failing firm defence, to provide a brief analysis of the legislation concerning the assessment of mergers. It is imperative to tie the analysis of the relevant legislation with its actual application in cases where the failing firm defence has been invoked. For each jurisdiction the landmark cases related to failing firm defence will be analysed in order to evaluate how the competition authorities and the courts have assessed the failing firm defence.
This paper will analyse a recent case where the European Commission has accepted the failing firm defence in clearing the transaction. The failing firm defence has been accepted only in a few transactions in the last 25 years and each new merger/acquisition clearance on the basis of the failing firm defence is a clear illustration of the impact of the recent financial crisis on the real economy.