French Competition Authority applies for the first time the “failing firm” exception to authorize a merger without commitment despite competition concerns

The “failing firm” exception allows a competitor to take over a company that would disappear in the short term if the transaction were not completed, even if the transaction harms competition.

This is the first time the French Competition Authority has used this exception.

• The three competitive risks identified

The Authority considered that the three following risks could result from this transaction, and the acquirer did not demonstrate that the negative effects could be offset by efficiency gains:

• The risk of economic dependence for bedding suppliers, as the group will represent nearly 50% of the bedding distribution market;
• The risk of deterioration of the contractual conditions for the franchisees in the overseas territories. As a result, the transaction could lead to the disappearance of an alternative for franchisees because But and Conforama are the two main groups offering franchises in the furniture sector within these territories;
• Risks related to the overlap of activities in the downstream markets for the retail distribution of furniture products.

• The first application of the failing firm exception

Despite these risks, the Authority authorized the transaction without any commitment, in application of the failing firm exception which requires the meeting of the three following criteria:

1. The financial difficulties of the target company would lead to its quick disappearance in the absence of a takeover.
   In the case at hand, the Authority found that this criterion was met given the significant financial difficulties encountered by Conforama, so that it would inevitably disappear.
2. There is no other takeover offer than that of the notifying party which would be less harmful to competition.
   In the case at hand, the Authority launched a broad consultation among all market participants which confirmed the absence of any interest from operators active in the problematic markets.
3. The disappearance of the company would not be less harmful to consumers than the takeover.
   The Authority compared the effects between the disappearance of the target's assets and the proposed takeover about each of the competitive risks and considered that the effects of the disappearance would not be less harmful than the takeover by Mobilux, insofar as the takeover would guarantee the maintenance of the diversity of the offer.

The press release of the French Competition Authority is available here (in French)

For more information contact Thomas Oster and Claire Burlin.