On January 7, 2025, the Federal Trade
Commission (FTC) announced that three
oil and gas companies will pay a record
US$5.6 million fine for engaging in improper
premerger coordination – also known as
“gun jumping” – prior to the closing of their
proposed merger.
This development serves as a reminder that merging parties
must be vigilant against potential gun-jumping activity while
pending transactions are being reviewed by the antitrust
agencies under the Hart-Scott-Rodino (HSR) Act.
Parties to an HSR-reportable transaction can violate the
antitrust laws if they “jump the gun” by taking steps toward
integration before the transaction has been cleared. This is
because, prior to closing, the parties are considered to be
independent competitors, and they must continue to operate
in the ordinary course (i.e., continue to compete), particularly
while any HSR review is pending. Gun-jumping issues can
arise from certain exchanges of information, transfers of
employees or assets, joint decision-making, or other forms
of coordination between merging parties. As a general rule,
prior to closing, parties are advised to plan for closing, but not
implement those plans.
The FTC alleged that XCL Resources and Verdun Oil violated
this principle when they assumed operational and decision-making
control over EP Energy following the announcement
that Verdun – which was under common management
with XCL – would acquire EP Energy for US$1.4 billion. The
alleged illegal activities included (i) XCL and Verdun ordering a
stoppage of EP’s planned drilling and development activities,
(ii) XCL and EP coordinating to manage EP’s customer
contracts, relationships and deliveries, and (iii) Verdun and EP
coordinating on prices for EP’s customers.
The HSR waiting period for the transaction began on July
26, 2021, and the parties’ gun-jumping activities began on
that date and lasted through October 27, 2021, when the
parties executed an amendment to their merger agreement.
The waiting period expired in March 2022 when the parties
entered a consent decree and the FTC granted early
termination of the waiting period.
Notably, the announcement of this fine comes nearly three
years after the FTC granted early termination, indicating that
the FTC’s involvement with this transaction continued for a
significant period of time after it cleared the deal to close.
Also notable is the fact that the FTC voted 4-0-1 to accept
the settlement (with Commissioner Holyoak recused), which
means that it had the support of both the sitting Democratic
commissioners and sitting Republican Commissioner Andrew
Ferguson, whom President-elect Trump has nominated to
serve as FTC chair in the new administration.
Merging parties should thus expect that the FTC will
continue to scrutinize potential gun jumping and to enforce
its prohibition – at least on facts similar to those here – even
following the anticipated changes to the FTC with the new
administration. Companies should continue to ensure that
their antitrust compliance programs address gun-jumping
concerns and that, when a merger is contemplated or
announced, all relevant business personnel are reminded of
the potential consequences of a violation.
