DealLawyers.com Blog

Earlier this week, the FTC entered into a consent decree with ExxonMobil allowing the company’s proposed acquisition of Pioneer Natural Resources to move forward. However, the FTC’s order included a novel term prohibiting ExxonMobil from honoring a commitment to appoint Pioneer’s founder and former CEO to its board. This excerpt from the FTC’s press release announcing the order explains the reasoning behind this unusual provision:

The proposed consent order seeks to prevent Pioneer’s Sheffield from engaging in collusive activity that would potentially raise crude oil prices, leading American consumers and businesses to pay higher prices for gasoline, diesel fuel, heating oil and jet fuel.

The FTC alleges in a complaint that Sheffield has, through public statements and private communications, attempted to collude with the representatives of the Organization of Petroleum Exporting Countries (OPEC) and a related cartel of other oil-producing countries known as OPEC+ to reduce output of oil and gas, which would result in Americans paying higher prices at the pump, to inflate profits for his company.

In the FTC’s complaint against Mr. Sheffield, it alleges that allowing him to serve on ExxonMobil’s board would increase the likelihood of anticompetitive coordination to reduce output:

By giving Mr. Sheffield a larger and more powerful platform— as well as decision-making influence over and access to competitively sensitive information of the largest multinational supermajor oil company and the largest producer in the Permian Basin—the Proposed Acquisition would increase the likelihood of anticompetitive coordination amongst crude oil producers and likely make existing coordination more effective.

This Wilson Sonsini memo on the FTC’s action explains that voting a prospective director “off the island” based upon an anticompetitive coordination argument is a pretty novel approach:

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.” 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.

The two Republican commissioners dissented from the FTC’s decision, noting that although Mr. Sheffield’s conduct was extremely troubling and warrants close scrutiny, the complaint “fails to articulate how the ‘effect of [the] transaction may be substantially to lessen competition” and doesn’t provide reasons to believe that the merger itself violates the antitrust laws.

– John Jenkins