Key takeaways

• The $5.6 million civil penalty settlement announced by the FTC is the largest ever fine imposed for a gun-jumping violation in the United States.
• This decision comes less than one year after the Antitrust Division of the U.S. Department of Justice (“DOJ”) imposed a $3.5 million fine on Legends Hospitality Parent Holdings, LLC for similar gun-jumping conduct in connection with its acquisition of ASM Global, Inc.
• These civil penalty settlements demonstrate the FTC’s and DOJ’s focus on violations of the HSR rules and actions alleged to interfere with their review of proposed transactions.
• Companies required to notify transactions under the HSR Act should implement safeguards at the outset of the deal process to ensure HSR compliance. In particular, guidance should establish protocols that limit the exchange of competitively sensitive information (e.g., restricting access to a “clean team”) and prevent the buyer from exerting control over the commercial operations or strategic decisions of the target prior to closing.

In depth

Illegal pre-merger coordination, or gun-jumping, occurs when parties to a proposed transaction fail to abide by the mandatory waiting period required by the HSR Act. Specifically, the HSR Act requires that the parties obtain HSR clearance prior to taking any action to integrate their separate commercial operations. In particular, the proposed buyer may not take “beneficial ownership” over the target business until the conclusion of the HSR review. Put another way, the target business must continue to operate separately and independently from the buyer. Penalties for gun-jumping violations include civil penalties, injunctive relief, and disgorgement.

The FTC voted 4-0 to accept the record-setting settlement with Verdun and refer the matter to the DOJ for prosecution. The DOJ filed the complaint and a proposed settlement on the FTC’s behalf, alleging that Verdun and XCL had “restricted EP’s discretion to conduct its ordinary-course business activities” during the HSR-mandatory waiting period.¹

On July 26, 2021, Verdun, who was under common management with XCL at the time of the transaction, had agreed to acquire EP for $1.4 billion.² The FTC initiated an in-depth investigation of the merger and required the divestiture of EP’s entire business and assets in Utah as a condition to allowing the transaction to proceed. The FTC’s March 2022 complaint challenging the acquisition alleged that without the divestiture “Salt Lake City refiners would likely have faced increased prices for Uinta Basin crude oil . . . and would likely try to pass on those costs to consumers.”³

In the more recent gun-jumping complaint, the FTC alleges that the parties engaged in activity that allowed “one competitor to control the other’s ordinary-course business activities relating to crude oil production before the transaction closed[.]”⁴ According to the complaint, the parties had engaged in multiple prohibited gun-jumping activities before the consummation of the transaction including that EP, XCL, and Verdun ordered a stoppage to EP’s planned well-drilling and development activities; XCL and EP coordinated to manage EP’s customer contracts, relationships, and deliveries in the Uinta Basin region of Utah; and Verdun and EP coordinated on prices for EP’s customers in the Eagle Ford region of Texas.⁵

In addition, the complaint also includes allegations that the parties exchanged competitively sensitive information during the HSR review without adequate safeguards to limit access or prevent misuse.⁶ The information exchange included far more detailed competitively sensitive information than what may have been needed to conduct due diligence including details on “EP’s customer contracts, customer pricing, production volumes, customer dispatches, business plans, site designs, vendor relationships and contracts, permitting and surveying information, and other competitively sensitive, nonpublic information.”⁷ XCL and Verdun employees simultaneously received information pertaining to EP’s development plans, contracts, customers, and projections.⁸

Importantly, the complaint highlights that the parties engaged in this activity at a time when “the U.S. market as a whole was facing significant supply shortages and multi-year highs in oil prices,”⁹ which may have contributed to the FTC imposition of a record-setting penalty.

Recommended actions

While companies negotiating a potential M&A transaction may have legitimate business reasons to exchange competitively sensitive information prior to closing, precautions should be taken and safeguards implemented to eliminate any possible anticompetitive effect resulting from the exchange. Separately, it is important that buyers permit target businesses to continue to operate in the ordinary course of business during the period between signing and the expiration of the HSR waiting period. In particular, parties to strategic M&A transactions should involve antitrust counsel early in the process and obtain guidance to avoid any potential gun-jumping concerns.

1 Complaint at 9, United States v. XCL Resources Holdings, LLC, et al., No. 1:25-cv-00041 (D.D.C. Jan. 7, 2025), available at https://www.ftc.gov/system/files/ftc_gov/pdf/complaintforcivilpenaltiesandequitablereliefforviolationsofthehartscottrodinoact.pdf.
2 Fed. Trade Comm’n, Oil Companies to Pay Record FTC Gun-Jumping Fine for Antitrust Law Violation, Press Releases (Jan. 7, 2025), https://www.ftc.gov/news-events/news/press-releases/2025/01/oil-companies-pay-record-ftc-gun-jumping-fine-antitrust-law-violation.
3 Id.
4 Complaint at 10, United States v. XCL Resources Holdings, LLC, et al., No. 1:25-cv-00041 (D.D.C. Jan. 7, 2025), available at https://www.ftc.gov/system/files/ftc_gov/pdf/complaintforcivilpenaltiesandequitablereliefforviolationsofthehartscottrodinoact.pdf.
5 Id. at 10-16.
6 Id. at 16-17.
7 Id. at 17.
8 Id. at 18.
9 Id. at 10.