FTC Merger Challenge Denied

For only the second time in a decade, an FTC merger challenge regarding a hospital has been denied. As reported in the Holland & Knight Antitrust Blog, the judge ruled against the Federal Trade Commission’s motion to enjoin Novant Health Inc.’s $320 million acquisition of Community Health Systems Inc. 

The decision did not hinge on how the FTC proposed to define the relevant geographic market. The court found that the proposed acquisition would result in market shares and market concentration that trigger a presumption that it would harm competition.

Nevertheless, the court okayed the merger based on the “failing firm” defense, in which the party must prove a “grave probability” of failure, “dim or nonexistent” reorganization prospects, and that the acquirer is the “only available purchaser.” 

According to current Merger Guidelines, “[t]his defense applies when the assets to be acquired would imminently cease playing a competitive role in the market even absent the merger.” Because it is a defense, it is typically asserted in response to arguments that the proposed merger is anti-competitive.

The FTC has already filed a notice of appeal to the U.S. Court of Appeals for the Fourth Circuit. The application of the failing firm defense will likely be a principal issue on appeal.

According to the Holland & Knight Blog, if the Fourth Circuit upholds the application of the defense, other struggling hospitals can be expected to view the decision as providing a potential path to surviving an antitrust challenge to an acquisition by a competitor.