On August 5, 2024, the Antitrust Division of the US Department of Justice (DOJ) announced a settlement with Legends Hospitality Parent Holdings LLC (Legends) resolving allegations that Legends violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act) by allegedly engaging in illegal premerger coordination prior to closing its acquisition of ASM Global, Inc. (ASM). Pursuant to the terms of the settlement, Legends must pay a $3.5 million fine and engage in antitrust compliance monitoring and training. This action reinforces the importance of transacting parties remaining independent competitors throughout the entire transaction process.
Key Take-Aways:
- Gun jumping remains an enforcement priority for the US antitrust enforcers. Until closing, transacting parties must continue to operate independently and cannot coordinate on bids, reach agreements between themselves regarding customers, or exchange competitively sensitive information.
- Pre-closing coordination will be scrutinized for potential anticompetitive conduct. Parties that compete should have protocols in place early in the process to ensure that they remain independent competitors until closing.
- The DOJ’s complaint hinges primarily on one set of facts. But this was enough for Legends to agree to pay a fine and agree to antitrust compliance conditions.
DOJ’s Allegations Focus on Legends’ “Course of Conduct” During the Entire Pre-closing Period
Legends is a global venue services company whose minority owners include Jerry Jones (owner of the Dallas Cowboys). In November 2023, Legends announced the $2.335 billion acquisition of ASM, which also is a venue services company but is focused on day-to-day venue management. Under the US antitrust laws, parties are prohibited from coordinating competitive conduct until the HSR waiting period expires and the deal closes.
The DOJ’s complaint alleged illegal pre-closing coordination between Legends and ASM relating to an arena in California. Before the HSR was filed (but after the parties began negotiating the acquisition in January 2023), the parties competed on a bid to manage the arena in California. ASM was the incumbent service provider, but Legends won the bid to manage the arena. After signing the agreement to acquire ASM, Legends decided that ASM should continue to manage the California arena. In December 2023 (after the HSR was filed but before the waiting period expired), the parties agreed that ASM would book third-party events at the arena and that ASM would continue providing venue management services for the arena instead of transitioning the services to Legends.
The DOJ alleged that this pre-closing conduct effectively amounted to Legends taking “unlawful control of ASM prior to the expiration of the HSR waiting period.” The “purpose and intent” of Legends’ conduct was “informed” by other unlawful coordination with ASM. Namely, the DOJ alleged that in August 2023 (again, prior to the HSR filing), Legends discussed competitively sensitive bid strategy with ASM relating to a North Carolina entertainment complex. Additionally, Legends and ASM exchanged competitively sensitive information relating to joint bids on at least two occasions, one of which occurred prior to submission of the HSR filing.
The settlement with the DOJ requires that Legends pay a civil penalty of $3.5 million and be subject to antitrust compliance training, whistleblowing, certification, and monitoring requirements for a period of 7 years.
The HSR Act is Not the Only Play in the DOJ’s Playbook
The DOJ alleged that Legends acquired beneficial ownership over ASM prior to the expiration of the HSR waiting period in violation of the HSR Act. However, in the complaint, the DOJ clearly stated that “[o]ther antitrust laws can apply to pre-closing conduct of transaction parties.” For example, Section 1 of the Sherman Act prohibits collusive conduct between competitors and can apply to pre-closing conduct.
Although the DOJ did not allege Section 1 violations against Legends, there is historical precedent for doing so. In 2014, the DOJ alleged that Flakeboard America Limited’s acquisition of SierraPine violated both Section 1 of the Sherman Act and the HSR Act prohibition on gun jumping. Specifically, the DOJ alleged that Flakeboard coordinated with SierraPine to close a mill and to move SierraPine customers to Flakeboard. Additionally, the DOJ alleged that SierraPine provided competitively sensitive information about the SierraPine customers to Flakeboard, delayed a press release announcing the mill closure to benefit Flakeboard, assured price matching, and encouraged key sales employees to direct the SierraPine customers to Flakeboard. Pursuant to the settlement, Flakeboard was required to disgorge profits obtained as a result of the activity, and each party was required to pay a $1.9 million HSR Act civil penalty.
Conclusion
Merging parties invest considerable time and resources in integration planning to ensure an effective post-closing transition. Although parties may want to act on those plans as soon as possible, parties must resist this temptation and ensure that integration planning is in fact “planning” and not implementation.
Law Clerk Jevan Light contributed to this article. Jevan is not admitted to practice law.
