On May 2, 2024, the Federal Trade Commission (FTC) announced a consent order in the matter of Exxon Mobil Corporation’s (Exxon) acquisition of Pioneer Natural Resources (Pioneer). The consent order is unusual in that the sole remedy obtained by the FTC is a prohibition on certain appointments to Exxon’s Board of Directors (Board) post-merger.1 The FTC alleges that the bans instituted by the consent decree “limit[] the likelihood of coordination in crude oil markets.”2 FTC Commissioners Melissa Holyoak and Andrew Ferguson voted against the consent order and authored a joint dissenting statement expressing concern that the FTC is “leveraging its merger enforcement authority to extract a consent from Exxon” without articulating how the transaction violates Section 7 of the Clayton Act.3 FTC Chair Lina Khan and Commissioners Alvaro Bedoya and Rebecca Slaughter voted in favor of the consent order and each issued statements defending the FTC’s decision to impose a remedy.
The crux of the FTC’s complaint concerns Pioneer founder and former CEO Scott D. Sheffield’s conduct. The FTC alleges that Mr. Sheffield “campaigned to organize anticompetitive coordinated output reductions between and among U.S. crude oil producers, and others, including [OPEC], and a related cartel of other oil-producing countries known as OPEC+.”4 The complaint recites a litany of public and private statements by Mr. Sheffield that, according to the FTC, illustrate a “sustained and long-running strategy to coordinate output reductions.” The merger agreement executed by the parties provides that Exxon shall “take all necessary actions to cause Scott D. Sheffield … to be appointed to the board of directors” of Exxon, but the FTC asserts that such an appointment would “increase the likelihood of coordination, and thereby harm competition, in the market for development, production, and sale of crude oil.” Accordingly, the consent order prohibits Mr. Sheffield from serving on Exxon’s Board indefinitely.5
Merger challenges premised on a so-called “coordinated effects” theory of harm are far less common than challenges that are based on the likely unilateral conduct of the combined firm post-merger. The 2023 U.S. Department of Justice and FTC Merger Guidelines (“2023 Merger Guidelines”) state that “[a] merger may substantially lessen competition when it meaningfully increases the risk of coordination among the remaining firms in a relevant market or makes existing coordination more stable or effective.”6 The 2023 Merger Guidelines list three “primary factors” that the FTC and the DOJ assess in determining whether a merger materially increases the risk of coordination, although only one factor need be met for the agencies to conclude that the merger may substantially lessen competition: whether the market is highly concentrated, evidence of prior actual or attempted attempts to coordinate, and elimination of a maverick.7
The complaint asserts two violations of the antitrust laws. First, appointing Mr. Sheffield to the Exxon Board would give him “a larger and more powerful platform” to “amplify[] his public messaging and the effectiveness of his private contacts with OPEC” and “decision-making influence over and access to competitively sensitive information” of Exxon, resulting in an increased likelihood of anticompetitive coordination among crude oil producers in violation of Section 7 of the Clayton Act.8 Second, the FTC invokes the prohibition on “interlocking directorates” under Section 5 of the FTC Act, which bans an executive or member of a company’s board from serving on the board of a competing company. Mr. Sheffield currently serves on the board of The Williams Companies, Inc., a competing producer of crude oil and natural gas to Exxon. The appointment of Mr. Sheffield to Exxon’s Board would therefore “facilitate a board interlock among competitors.”
Commissioners Holyoak and Ferguson agree that the majority’s allegations involving Mr. Sheffield’s conduct “are extremely troubling and warrant close scrutiny under the antitrust laws.”9 However, they assert that the complaint “fails to articulate how the ‘effect of [the] transaction may be substantially to lessen competition” and does not provide “reason to believe this transaction itself violates Section 7.” The dissent notes that the factors which were previously considered under the 2010 Horizontal Merger Guidelines in analyzing the risk of coordination differ from those discussed in the 2023 Merger Guidelines, and that courts have not yet endorsed the new factors. Even so, Commissioners Holyoak and Ferguson disagree with the majority that Mr. Sheffield’s conduct amounts to evidence of any of the primary factors in the 2023 Merger Guidelines because the complaint fails to allege that the merging parties represent a “substantial share” of the market and that the likelihood of successful coordination post-merger is “virtually unchanged by the proposed acquisition.” They further express particular concern with “the Complaint’s focus on Sheffield’s past conduct at Pioneer as an indicator of Exxon’s future actions, without any discussion of whether Exxon has incentives to engage in the same behavior.” The dissent cautions that “[f]ocusing on individuals’ conduct divorced from a firm’s incentives could have troubling ramifications for future enforcement actions.”
This matter reinforces the FTC’s commitment to pursuing enforcement actions premised on somewhat novel theories of harm based upon the principles outlined in the 2023 Merger Guidelines. Companies planning for a merger or acquisition should carefully consider those principles when assessing regulatory risk. Regardless of whether courts have or will adopt the 2023 Merger Guidelines, transactions are sure to face extended regulatory reviews by the FTC and the DOJ and, as evidenced here, may potentially require unconventional remedies to anticompetitive concerns to obtain merger clearance.
[1] Federal Trade Commission, Decision and Order, In the Matter of Exxon Mobil Corporation, https://www.ftc.gov/system/files/ftc_gov/pdf/2410004exxonpioneerorderredacted.pdf (“Decision and Order”).
[2] Federal Trade Commission, Press Release, “FTC Order Bans Former Pioneer CRO from Exxon Board Seat in Exxon-Pioneer Deal,” May 2, 2024, https://www.ftc.gov/news-events/news/press-releases/2024/05/ftc-order-bans-former-pioneer-ceo-exxon-board-seat-exxon-pioneer-deal.
[3] Joint Dissenting Statement of Commission Melissa Holyoak and Commissioner Andrew N. Ferguson, In the Matter of Exxon Mobil Corporation, May 2, 2024, at 1, https://www.ftc.gov/system/files/ftc_gov/pdf/2410004exxonpioneermh-afstmt.pdf (“Joint Dissenting Statement”).
[4] Federal Trade Commission, Complaint, In the Matter of Exxon Mobil Corporation, at 2, https://www.ftc.gov/system/files/ftc_gov/pdf/2410004exxonpioneercomplaintredacted.pdf (“Complaint”).
[5] The consent decree also prohibits any other person who was employed by or served as a director to Pioneer in the calendar year leading up to the date the merger agreement between Exxon and Pioneer was executed from serving on Exxon’s Board for five years. See Decision and Order, supra n.1.
[6] U.S Department of Justice and Federal Trade Commission, Merger Guidelines, § 2.3, December 18, 2023, at 8, https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf.
[7] Id., § 2.3.A, at 8-9.
[8] Complaint, supra n.4 at 1-2.
[9] Joint Dissenting Statement, supra n.3 at 1.
