The “Failing Firm” Antitrust Defense for Acquisitions of Distressed Assets

The “Failing Firm” Antitrust Defense for Acquisitions of Distressed Assets


By: Nathaniel L. Asker, Maria R. Cirincione, Aleksandr B. Livshits
 

The U.S. District Court for the District of Delaware recently issued an injunction sought by the Department of Justice (“DOJ”) to block Energy Solutions, Inc.'s proposed acquisition of a rival radioactive waste disposal business Waste Control Specialists LLC,  finding that the proposed combination would substantially lessen competition in the market for disposal of low level radioactive waste.   In doing so, the court rejected the parties' “failing firm” defense, providing valuable guidance for parties seeking to pursue the defense before the antitrust agencies or in court.  A failing firm defense can enable an otherwise anticompetitive acquisition to proceed if the transacting parties are able to prove that the target is likely to exit the market but for the proposed transaction and that there is no alternative buyer for the failing assets.   For strategic buyers of financially distressed businesses, the defense can appear attractive.  However, the Energy Solutions decision serves as a reminder that the failing firm defense requires more than just a financially troubled target, as courts will also thoroughly examine the extent of the seller's efforts to market the assets to alternative bidders.

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