Record “Gun-Jumping” Fine Serves As Cautionary Tale For Need To Avoid Unlawful Premerger Coordination

On January 7, 2025, the Federal Trade Commission (FTC) announced a settlement with three crude oil producers in which those companies will pay a $5.6 million fine to resolve claims they engaged in unlawful premerger coordination prior to expiration of the 30-day waiting period under the Hart-Scott-Rodino (HSR) Act. The payment constitutes the largest penalty ever imposed by the antitrust regulators for what is known as “gun-jumping.”

Put simply, gun-jumping occurs when parties to a proposed transaction behave as a single company before closing. There are two statutory prohibitions against gun-jumping:  (1) Section 1 of the Sherman Act, which prohibits competitors from entering into anticompetitive arrangements; and (2) the HSR Act, which requires that parties to certain transactions file notice with the FTC and U.S. Department of Justice (DOJ) and observe a 30-day waiting period prior to closing the deal. This allows the agencies to review the notification and determine whether they need more information about the transaction before deciding whether to seek to block the proposed transaction as anticompetitive, and ensures the parties remain independent businesses in the meantime.

According to the complaint filed by the FTC in connection with the settlement, Verdun Oil Company II LLC, under common management with XCL Resources Holdings, LLC, agreed to acquire EP Energy LLC in a $1.4 billion transaction subject to the HSR Act.  After the parties filed their statutory notification, but before expiration of the waiting period, the seller allegedly allowed the buyers “to assume operational and decision making control over significant aspects of [seller’s] day-to-day business operations,” including by halting the seller’s new well-drilling activities, which allegedly contributed to crude oil shortages at a time of increasing U.S. demand.  Moreover, the buyers allegedly imposed changes to seller’s well-drilling designs and leasing and renewal activities, and required that seller submit all expenditures in excess of $250,000 for buyers’ approval.

Notably, the FTC voted 4-0-1 to accept the settlement, with one commissioner recusing herself. Whatever changes may be coming to the FTC in the coming months following the change in presidential administrations, there is bipartisan consensus on the anticompetitive effects of gun-jumping. This latest action also serves as a reminder that companies should take gun-jumping seriously.  Until a deal closes, parties should operate separately, especially if they historically have been competitors in a particular industry.  At the same time, the agencies have acknowledged the need for parties to exchange certain information to evaluate the proposed transaction and to engage in legitimate premerger integration planning. Before exchanging information or discussing integration, the best course is for parties to consult with antitrust counsel to avoid inadvertent antitrust violations.