DealLawyers.com Blog

This Morrison Foerster insight highlights a recent enforcement action marking the second time the Biden administration has sued for HSR Act violations and the first time the DOJ and FTC have pursued a gun jumping case in 7 years. In early August, the DOJ brought an action against Legends Hospitality Parent Holdings in connection with its proposed acquisition of ASM Global for gun jumping in violation of the HSR Act by effectively assuming control of ASM and failing to operate separately prior to the expiration of the HSR waiting period.

On November 3, 2023, Legends agreed to purchase ASM for $2.325 billion and submitted an HSR filing on November 6, 2023. The DOJ issued a Second Request on January 8, 2024, to extend its review of the deal. The DOJ closed its review on May 29, 2024. While the DOJ did not challenge the transaction itself, it filed the gun jumping lawsuit months later, on August 5, 2024.

According to the DOJ, while the DOJ’s review of the deal was still pending, Legends and ASM engaged in gun jumping. Specifically, the DOJ claims that in May 2023, Legends won the right to manage a city-owned arena in California where ASM was the previous manager. The DOJ alleged that due to the pending acquisition, Legends decided to allow ASM to continue to operate the arena instead and signed an agreement to that effect on December 7, 2023. Also during the diligence process, Legends allegedly sought to discuss competitive bidding strategies with ASM. It subsequently decided not to compete for a bid opportunity against ASM and decided to change a different Legend’s bid to a joint bid with ASM.[3]

The DOJ asserted that the violation started on December 7, 2023 (when Legends signed the agreement with ASM to manage the California arena) and continued until May 29, 2024 (when the HSR waiting period was terminated), which amounts to 175 days total. Legends agreed to pay a $3.5 million civil penalty to settle the alleged violation, approximately 40% of the maximum civil penalty, among other requirements, which include submitting regular compliance reports to the DOJ, appointing an Antitrust Compliance Officer, and implementing an antitrust training and compliance program.

The alert notes that the DOJ and the FTC have considered the following types of conduct to constitute gun jumping in the past:

– Sharing competitively sensitive information, such as current and future pricing or cost information;[10]
– Prematurely transferring beneficial ownership of the target or closing the transaction before the expiration of the HSR waiting period;[11]
– Prematurely integrating or consolidating operations;[12]
– Exercising control over the other party’s assets or its routine business, management, or operations;[13] and
– Engaging in impermissible joint conduct, such as fixing prices, terms, and conditions.[14]

The alert suggests parties “confer with legal counsel prior to discussing integration, exchanging data, or discussing the transaction with customers, suppliers, or the public, and develop safeguards for integration planning tailored to the transaction at hand” and lists other best practices to avoid even the appearance of gun jumping.

– Meredith Ervine