Stephen Wu and Payton Thornton examine FTC scrutiny of “shop” processes in Journal of Bankruptcy Law

In an article with the Journal of Bankruptcy Law, Stephen Wu and Payton Thornton examined a recent statement from Federal Trade Commission Chairman Andrew Ferguson addressing the “failing firm” defense in the context of a hospital merger and emphasized the significance of comprehensive “shop” processes when merging parties argue that an acquisition is necessary because the target firm is in financial distress.

While focused on the hospital industry, the FTC Chairman’s statement applies with equal force to transactions in any industry that involve a financially distressed party where the parties may be considering asserting a failing firm defense to obtain antitrust clearance, Stephen and Payton wrote. Financially distressed firms considering transactions should consider the statement and engage in comprehensive shop processes before selecting a close competitor as their partner.

Stephen and Payton also note that neither the FTC nor Department of Justice endorse the position that a firm qualifies for the failing firm defense simply because of bankruptcy proceedings. Instead, to qualify for and successfully assert the failing firm defense, the firm must not be capable of reorganizing in bankruptcy, among other elements.

Read the full article in the Journal of Bankruptcy Law.