On April 28, 2022, the French Competition Authority (“FCA”) unconditionally cleared the acquisition of home furnishing retailer Conforama by Mobilux, the parent company of competitor But Group. The FCA applied the failing firm defense for the first time.
On July 8, 2019, Mobilux Group announced its intention to acquire Conforama, a retailer of furniture, household appliances, home decoration, and general merchandise products in France and the French overseas territories. Mobilux competes with Conforama through its subsidiary BUT. The transaction would lead to the combination of Conforama’s 170 sales outlets and BUT’s 322 sales outlets.
The transaction was initially notified to the European Commission; however, Mobilux requested that it be referred back to the FCA, arguing that it was best placed to assess the impact of the transaction locally and had experience in the home retail distribution sector. The Commission referred the case to the FCA on June 26, 2020.
Despite the fact that the transaction involved significant overlaps, as evidenced by the subsequent opening of an in-depth investigation, the FCA granted Mobilux a derogation to the standstill obligation on July 23, 2020, in light of the financial difficulties faced by Conforama, allowing it to close the transaction prior to obtaining merger control clearance – a prerogative that the FCA has used only in a few instances in the past.
On April 28, 2022, after a review period of almost two years, the FCA ultimately cleared the transaction unconditionally based on the failing firm defense. It is the first time that the FCA applies the failing firm defense since it gained merger control powers in 2009.
The FCA’s concerns
The competition concerns raised by the FCA were threefold. First, the transaction could result in significantly strengthening the merging parties’ purchasing power in relation to bedding products. The parties represented more than 50% of bedding products suppliers’ route to market. Bedding products suppliers could therefore risk finding themselves in a state of economic dependence vis-à-vis the merged entity.
Second, the FCA was concerned that the transaction would reduce the number of franchisors in the furniture sector in the French overseas territories from two to one, thereby potentially leading to the deterioration of the franchisees’ contractual conditions in the French overseas territories, and in particular an increase in franchisees’ fees.
Third, the FCA identified competition concerns in various downstream markets for the retail distribution of furniture products in various local catchment areas, where the combined entity would have a strong market position.
Mobilux failed to alleviate the FCA’s concerns by showing that efficiency gains would have mitigated the competition concerns. However, Mobilux successfully argued that Conforama was it’s a failing firm and therefore the transaction would have no detrimental impact on competition.
Application of the failing firm defense
The parties pointed out the significant financial difficulties encountered by Conforama that would have led Conforama to exit the market in the short term.
The FCA applied the three-limb test established by the Conseil d’Etat (the French administrative supreme court) in 2004 in the Seb/Moulinex decision, namely that: (i) absent a takeover, the target would exit the market; (ii) no alternative offer would lead to a less adverse outcome on competition; and (iii) the target exiting the market would be no less harmful to consumers than the proposed merger.
In the case at hand, the FCA considered that the first two criteria were met based on Conforama’s significant financial difficulties and the absence of an alternative offer. In relation to the third criterion, the FCA found that the transaction would ensure that product choice and diversity would be maintained which would not be the case if Conforama exited the market. Therefore, the FCA concluded that Conforama exiting the market would not be less harmful than the transaction.
The full decision, which has yet to be published, will likely contain some interesting and useful details on how the failing firm defense was assessed by the FCA in the specific circumstances of the case.
 Commission decision of June 26, 2020, case M.9894.
 See, e.g., FCA Decision in Bio c’ Bon and Carrefour as reported in the FCLN Newsletter of September 2021, available at: https://www.clearygottlieb.com/-/ media/files/french-competition-reports/french-competition-law-newsletter–september-2021-pdf.pdf.
 Before 2009, mergers were investigated by the Minister for Economy. The failing firm defense was successfully used only in a handful of cases investigated by the Minister for Economy – see letter from the Minister for Economy of April 25, 2003 addressed to EBSCO Industries Inc. in relation to a merger in the sector for subscription agencies; and see letter from the Minister for Economy of January 20, 2003 addressed to Alliance Santé Distribution in relation to a merger in the sector for wholesale distribution of pharmaceuticals.
 Conseil d’Etat, ruling of February 6, 2004, No.249267.