Cornerstone Research has worked on some of the largest cases involving the failing firm defense in recent years. Our market-leading analyses and breadth of experience in these matters afford clients distinct insights into the practical applications of a credible failing firm defense.

Trial experience

Both regulatory agencies and merging parties have retained Cornerstone Research experts to assess the merits of failing firm claims. Our experts testified in two closely watched trials, United States v. EnergySolutions Inc. and Otto Bock HealthCare North America Inc. These two decisions provide important guidance, not only on how regulatory agencies and judges approach failing firm criteria, but also on what merging parties must demonstrate in order to clear the threshold of each criterion as specified in the Horizontal Merger Guidelines.

Sector experience

We work on failing firm defense matters across a wide range of industries, including biopharma, finance, food and beverage, healthcare, online gaming, and technology.

Cornerstone Research also has related and complementary expertise in financial distress and bankruptcy cases that involve firms in a variety of industries. Our sector experience includes work in chemicals, energy, healthcare, financial institutions, insurance, media and entertainment, mining, mutual funds, oil and gas, real estate, retail, software, telecommunications, and transportation.

Analytical expertise

Our work in cases involving a failing firm defense is solidly based on the criteria laid out in the Guidelines:

Near-Term Ability to Meet Financial Obligations
We provide economic and financial analysis and review of merging parties’ financial statements; regulatory filings, internal documents, planning documents, and projections; and parties’ testimony. We also examine historical firm behavior to evaluate the likelihood of the target firm’s assets exiting the market.

Inability to Reorganize Successfully under Chapter 11 of the Bankruptcy Act
We review the target firm’s financials within the context of its competitors to provide information related to industry trends. Such analyses can provide a way to distinguish between firm-specific structural problems that might lead to the exit of the firm’s assets, versus industry- or market-specific issues that can be addressed without the firm’s assets exiting the market.

Efforts to Elicit Reasonable Alternative Offers
We analyze the target firm’s efforts to identify and court potential buyers (the “shop process”) in order to assess whether the firm meets the industry norm. We also investigate the value of the assets being sold, the type of buyers targeted, and provisions in deal documents that might affect the pool of potential purchasers.

Authored By Ceren Canal Aruoba and Greg Eastman

Issues Related to Failure and Exiting Assets

In response to the DOJ and FTC’s RFI on merger enforcement, the authors discuss the current approach to failing firms and the gap between the merger guidelines and factors considered in past cases. They outline questions the agencies could use to illustrate the types of factors to consider as criteria for identifying failing firms.


Featured Publications

27 April 2022

Cornerstone Research Staff and Affiliated Experts Submit Comments to the Joint FTC-DOJ Inquiry on Merger Enforcement

The FTC and DOJ launched a joint public inquiry to solicit comments from the public on merger enforcement.

24 July 2020

5 Questions with Greg Eastman and Ceren Canal Aruoba: The Horizontal Merger Guidelines and the Failing Firm Defense

Dr. Eastman and Ms. Canal Aruoba explain the Horizontal Merger Guidelines’ criteria for clearing the bar of an affirmative defense;

23 July 2020

Non-Standard Counterfactuals in Merger Control

The authors compare and contrast competition agencies’ approaches to competition and failing firm counterfactuals in merger cases.

11 June 2020

5 Questions with Greg Eastman: The Failing Firm Defense in the Age of COVID-19

In this interview, Dr. Eastman considers the economic impact of COVID-19, how that impact compares to that of the 2008 financial crisis.