On January 7, 2025, the Federal Trade Commission (FTC) fired a warning shot to merging companies, sharply reminding parties of their obligation to refrain from illegal pre-merger coordination, or “gun jumping.” The Department of Justice (DOJ), at the request of the FTC, filed a civil antitrust lawsuit against crude oil producers XCL Resources Holdings, LLC (XCL), Verdun Oil Company II LLC (Verdun), and EP Energy LLC (EP) for violating the mandatory waiting period rules under the Hart-Scott-Rodino Act of 1976 (HSR Act), as amended. Simultaneously, the DOJ also filed a proposed settlement under which XCL, Verdun, and EP have agreed to pay a $5.6 million penalty – the largest penalty ever imposed for a gun-jumping violation in U.S. history.

Under the HSR Act, parties to certain mergers and acquisitions must make a pre-merger notification filing to the FTC and DOJ and observe the applicable waiting period (including any additional time needed for agency requests or investigations) before transferring any control or ownership of the acquired business to the buyer. According to the complaint, the three companies violated the HSR Act’s waiting period requirements while Verdun and XCL’s acquisition of EP, a competitor, was undergoing antitrust review. The complaint alleges that, before the FTC’s approval, EP allowed Verdun and XCL to assume decision-making and operational control over “significant aspects of EP’s day-to-day business.” The DOJ noted that this gun-jumping conduct allowed the buyer to acquire beneficial ownership and control over key competitive decisions before closing – “precisely what the HSR Act prohibits.” The complaint cites multiple instances of gun jumping, including XCL’s order to EP to stop its well drilling and development activities at a critical time of U.S. crude oil supply shortages and increased gasoline prices and XCL and EP’s coordination of customer contracts and prices.

Both the FTC’s and DOJ’s announcements emphasize the gravity of such gun-jumping violations, pointing to the record civil penalty imposed against the companies. Given this scrutiny, parties to transactions must continue to operate as separate companies until the expiration or termination of any HSR waiting periods and closing. Among other things, the parties should not:

• Coordinate business activities;
• Participate in day-to-day decision-making about the other party’s business affairs;
• Take possession or control of any assets of the other party;
• Agree on, coordinate, or discuss outstanding or prospective competitive bids, pricing, or discounts; or
• Discuss or exchange non-public competitively sensitive information (outside of a “clean team” process established and conducted by outside antitrust counsel).

This list does not exhaust all of the possible issues that may arise during the pre-closing period. Contact a member of the Antitrust & Competition team for help navigating this process.