The European Commission (EC) recently provided an unusual example of an acquisition being cleared on the basis of the so-called “failing firm defence”. This allows the clearance of a transaction where, although normally it would be seen as anticompetitive, the target would have failed anyway and the buyer provided the best alternative owner.
The transaction was the acquisition of certain Shell refinery assets at Harburg in Germany by Nynas of Sweden, which the EC cleared on 2 September 2013 under the EU merger control rules. After the transaction, Nynas would be the only naphthenic base and process oil producer and the largest producer of transformer oils (TFO) in the EEA. It would face substantial competition only from Ergon, a US-based importer. Nevertheless, Shell demonstrated that it would not have continued to operate the Harburg refinery, as the refinery was economically unsustainable. Nynas’ business model was shown to be different. Further, other than Nynas, there were no alternative buyers. The EC was therefore able to apply the failing firm defence, stating that: “If this acquisition did not take place, the … plant would simply close down, dramatically reducing production capacity in Europe for a number of specific oil products. We authorised this acquisition because it is the only way to avoid a price increase for consumers”.