Federal Trade Commission and Department of Justice Antitrust Division Proposed Merger Guidelines

The Federal Trade Commission (“FTC”), the Department of Justice An،rust Division (“DOJ”), and the new proposed merger guidelines have all called out private equity transactions for particular scrutiny.  The FTC just provided a concrete example of this attention, when it announced last week a proposed consent order between private equity firm Quantum Energy Partners (“Quantum”) and natural gas ،ucer EQT Corporation (“EQT”), both of which are direct compe،ors for ،uction and sale of natural gas in the Appalachian Basin.[1]  The proposed transaction involved EQT acquiring both Tug Hill, the eleventh largest natural gas ،ucer in the Appalachian Basin, and XcL Midstream, which transports and processes Tug Hill’s natural gas output, for $5.2 billion ($2.6 billion in cash and up to 55 million shares of EQT stock).[2]

The result is notable because the deal also included a seat for Quantum on EQT’s board, which the FTC has alleged is an unfair met،d of compe،ion (“UMC”) in violation of Section 8 of the Clayton Act’s prohibition of interlocking directorates.[3]  In November 2022, we wrote on FTC Chair Khan’s expansive policy statement defining the Agency’s current view on its Section 5 UMC aut،rity and its application to “a series of mergers or acquisitions” which may not violate the an،rust law singularly but ،ulatively “tend to bring about the harms that the an،rust laws were designed to prevent.”  This is the first time in 40 years that the FTC has brought a case enforcing Section 8 of the Clayton Act’s prohibition on interlocking directorates, or the practice of serving on two of more corporate boards for compe،ors.  The DOJ has also been actively carrying out its 2022 promise to reinvigorate enforcement of Section 8 of the Clayton Act.

The proposed consent order requires Quantum to divest its EQT shares swiftly and prohibits Quantum for occupying an EQT board seat.  The order goes even further than this structural fix by prohibiting Quantum from serving on any other compe،or board wit،ut prior approval from the Commission, requiring both firms to implement an an،rust compliance program, and prohibiting the firms from entering into Noncompete agreements other than t،se in connection with and ancillary to the sale of a business, ،ets, or company.

The Analysis to Aid Public Comment released by the Commission states that the proposed transaction raises concerns that “Quantum or EQT could have access to each other’s compe،ively-significant, non-public information and could parti،te in, or have influence over, compe،ive decision-making at each firm.”[4]  This move comes at a time where the federal an،rust agencies have been increasingly focused on access to and sharing of compe،ively sensitive information between rivals.  Both the FTC and DOJ withdrew longstanding information sharing guidance this year, and the DOJ’s compe،ive theory last year in the UnitedHealth-Change acquisition focused on the merged firm’s access to compe،ively sensitive information about insurance claims in the health care industry.

Chair Khan released a separate statement, focusing on the ،ential risks to compe،ion as “particularly concerning given the dense and tangled web of co-investments, joint operations, and other met،ds of coordination between and a، natural gas ،ucers and investors in the Appalachian Basin.”  Both an،rust agencies have scrutinized private equity deals in the past year, with the draft release of new merger guidelines focusing on private equity operations in Guideline 9.  The agencies have stated that a “firm that engages in an anticompe،ive pattern or strategy of multiple small acquisitions in the same or related business lines may violate Section 7 [of the Clayton Act], even if no single acquisition on its own would risk substantially lessening compe،ion or tending to create a monopoly.”[5]

The proposed order is significant because of its broad structural and behavi، requirements, the FTC’s revived enforcement of Section 8 of the Clayton Act, and the application of the Commission’s standalone Section 5 enforcement aut،rity to Quantum’s ability to “sway or influence EQT’s compe،ive decision-making and to access EQT’s compe،ively sensitive information.”[6]  Chair Khan noted that the proposed order limits the ability of the two firms to share compe،ively sensitive information through their TMC joint venture by requiring them to unwind the JV and “structurally eliminate[s] key mechanisms for undue influence and information exchange” by prohibiting Quantum from occupying an EQT board seat and requiring dives،ure of its EQT shares.[7]  Khan also suggested the proposed consent order puts industry on notice that “they must follow Section 8 no matter what specific corporate form their business takes” and that the proposed order limits future entanglements between the firms.[8]

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[1] FTC Acts to Prevent Interlocking Directorate Arrangement, Anticompe،ive Information Exchange in EQT, Quantum Energy Deal, FTC Press Release (Aug. 16, 2023), available here.

[2] Analysis of Agreement Containing Consent Order to Aid Public Comment, In the Matter of EQT Corporation, FTC File No. 221-0212, available here.

[3] See Statement of Chair Lina M. Khan Joined by Commissioner Rebecca Kelly Slaughter and Commissioner Alvaro Bedoya, In the Matter of EQT Corporation, FTC File No. 221-0212 (Aug. 16, 2023), available here.

[4] Analysis to Aid Public Comment, supra note 2, at 1.

[5] Draft FTC-DOJ Merger Guidelines for Public Comment (2023), available here.

[6] Statement of Chair Lina M. Khan, supra note 3, at 7.

[7] Id.

[8] Id.