This week, the Antitrust Division of the U.S. Department of Justice (DOJ) reached one of its largest “gun jumping” settlements following allegations that sporting and entertainment events company, Legends Hospitality, illegally conducted business with its acquisition target, ASM Global Inc., prior to consummating their transaction.

Legends announced in November its planned acquisition of rival venue operator ASM for $2.35 billion.  According to DOJ’s allegations, while the transaction was still under HSR review, Legends unlawfully exercised operational control over certain aspects of an ASM-managed arena.  In particular, even though Legends had previously won a bid to manage a city-owned arena in California, due to the planned acquisition of ASM, Legends decided to have ASM provide those services instead.  Additionally, during acquisition negotiations, Legends allegedly sought to exchange competitively sensitive information and discuss and coordinate competitive bidding strategies with ASM.

This type of control and coordination conflicts with antitrust “gun jumping” provisions, which require deal partners to operate as separate and independent entities until their merger is consummated. Specifically, under the Hart-Scott-Rodino (HSR) Act, parties to transactions meeting certain thresholds must file a notification with the DOJ and Federal Trade Commission (FTC) and observe a statutorily prescribed waiting period (usually 30 days) prior to closing. In addition to not formally closing the transaction during this time, the parties may not integrate their businesses, the acquiring company may not exercise operational control, and the parties must not share competitively sensitive information.  Gun jumping is also considered a violation of Section 1 of the Sherman Act, so that it can occur even in connection with transactions that do not require a HSR filing.

Violations of these provisions can invoke fines of up to $51,744 per day (as adjusted) of the violation, injunctive relief, and disgorgement of any illegally obtained profits stemming from the violation.   In this case, in addition to the $3.5 million monetary penalty, the settlement here requires Legends to hire a compliance officer to provide antitrust and compliance training.  Consistent with the requirements of the Tunney Act, this settlement is open for a 60-day comment period, after which time the U.S. District Court for the District of Columbia may approve it upon finding it to be in the public interest. Previous cases have also included multi-million-dollar penalties for violations.

Companies, investors, and their deal counsel should keep “front-of-mind” the limitations imposed by the antitrust laws pre-consummation. Having said that, the antitrust authorities do recognize that planning for after the transaction closes should not have to wait to begin until consummation occurs.  Done carefully, with consultation with antitrust counsel, and with no implementation until closing, parties should be able to have “Day One” plans worked out while reviews are still pending.

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