FTC Chair Details 'Shop Process' for Failing Firm Defense

In a statement prompted by an abandoned Ohio hospital merger, Federal Trade Commission Chairman Andrew Ferguson provided the most granular guidance to date on the agency's evaluation of the 'failing firm' defense. The chairman’s statement emphasizes the critical importance of a target company conducting a robust and comprehensive 'shop process' before agreeing to be acquired by a direct competitor. For sophisticated counsel and clients, this guidance clarifies the high bar for successfully asserting that a financially distressed company had no other viable options. Failure to conduct and document an adequate search for alternative buyers could unwind a deal, force a costly mid-review sale process, or lead to a full-blown antitrust challenge, jeopardizing deal certainty. The chairman detailed five factors the FTC will now scrutinize: the breadth of buyer solicitation, the time allowed for evaluation, equal access to diligence materials, the seller's good-faith engagement, and appropriate consideration of offers with fewer competitive concerns. Parties contemplating a transaction that may rely on a failing firm argument should proactively engage antitrust counsel to design and execute a sale process that can withstand this intensified agency review.