FTC Details Scrutiny of 'Shop' Process for Failing Firm Defense

In a statement prompted by a scuttled Ohio hospital merger, Federal Trade Commission Chairman Andrew Ferguson has detailed five factors the agency will scrutinize when evaluating the adequacy of a 'shop' process for a company asserting the 'failing firm' defense. The new guidance focuses on the third prong of the defense, which requires a good-faith effort to find an alternative buyer. The FTC will now explicitly assess whether the seller solicited a full set of potential buyers, gave them sufficient time and data for diligence, engaged in good-faith negotiations, and properly weighed less anticompetitive offers. This signals a more demanding standard for parties in all industries, not just healthcare. For sophisticated counsel, it means a pre-deal 'shop' process that is merely adequate may no longer suffice. Failure to conduct and document a robust and impartial search for alternative acquirers before signing with a direct competitor could prove fatal to a deal during the subsequent antitrust review, or at least cause significant delays and added expense.