Mergers & Antitrust Law News

Sprint’s Failing Firm Plea Likely Put to ‘High Standard’ Test

April 8, 2019, 2:29 PM

A company’s argument that it needs to be acquired in order to survive is a “high standard to meet,” the Justice Department’s chief antitrust enforcer said.

The failing firm defense—in which merging parties argue that their combination won’t lead to weakened competition since one of the companies isn’t bound to survive anyway—is a central argument Sprint Corp. and T-Mobile USA Inc. pitched to the DOJ and Federal Communications Commission in hopes of getting their deal approved.

“There is certainly the legal case law and there are some standards for what is called the failing firm defense in a merger and we follow that,” Delrahim said in an April 4 interview with Bloomberg Law, without commenting specifically on the Sprint-T-Mobile deal.

Delrahim’s remarks on the failing firm defense show that his views closely align with those of previous antitrust chiefs who have blocked deals that have submitted similar pleas. The companies likely will have to assert more than just Sprint’s economic woes for the DOJ to clear the deal.

Sprint’s more than $40 billion of debt prevents the company from effectively competing in the wireless market, the company said in public filings with the FCC and in congressional hearings on the merger.

“To make the market more competitive, we need to make Sprint and T-Mobile grow,” Marcelo Claure, Sprint’s executive chairman, said during a House hearing in March.

Sprint also says its revenue continues to drop as customers flee its network. Such revenue dips will make it impossible to invest in a next-generation 5G network, Sprint says.

“Sprint has not been able to turn the corner with respect to its core business challenges,” the company said in filings.

Blocked Before

The Sprint, T-Mobile deal would combine the third and fourth largest U.S. wireless carriers in an already concentrated market.

Verizon Communications Inc. and AT&T Inc., the two largest U.S. carriers, dominate the market. T-Mobile CEO John Legere said the deal with Sprint would strengthen its competitiveness.

The DOJ has shown that it’s not sympathetic to companies’ financial woes in reviewing mergers.

The department blocked a $367 million merger between two radioactive waste disposal companies, EnergySolutions and Waste Control Specialists LLC, in 2016 despite their failing firm plea. Waste Control Specialists said that it would go under without the deal.

A Delaware court upheld in 2017 the DOJ’s suit to stop the merger, similarly saying the failing firm defense didn’t stand up on closer review of Waste Control’s evidence.

Both companies are still in operation.

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editors responsible for this story: Roger Yu at ryu@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com

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