On August 5, the Department of Justice (DOJ) secured a landmark decision from the U.S. District Court for the District of Columbia in a high-profile monopolization litigation. Perhaps lost in the shuffle of this historic decision, on the same day DOJ filed a civil complaint in New York against Legends Hospitality Parent Holdings (Legends) that may signal increased agency scrutiny of pre-closing activity by parties to mergers and acquisitions.

The complaint, filed alongside a proposed settlement that includes a $3.5 million civil penalty, injunctive relief governing future conduct unrelated to the proposed transaction and the appointment of an Antitrust Compliance Monitor, alleges that Legends Hospitality failed to wait for the expiration of the waiting period imposed by the Hart-Scott-Rodino (HSR) Act before coordinating its business interests with those of its acquisition target, ASM Global, Inc.

According to DOJ’s complaint, Legends and ASM started discussions about a potential acquisition in January 2023 and reached agreement on November 3, 2023. Legends reportedly filed its HSR notice with DOJ on November 6, 2023. DOJ issued a second request on January 8, 2024 and the HSR waiting period ultimately expired May 29, 2024.

DOJ alleges that Legends won the right to manage an arena in California in a municipal bidding process in May 2023 (i.e., after acquisition discussions started but before the parties reached agreement and before the HSR waiting period expired) that ASM also competed in. Despite initial detailed planning for carrying out the contract and management duties itself, Legends decided to transfer these responsibilities to ASM. This decision was documented in December 2023, in the middle of the HSR waiting period.

DOJ’s complaint alleges that transferring execution of this contract from Legends to ASM before expiration of the HSR waiting period resulted in a continuing violation of the HSR Act for 175 days -- from December 2023 until the expiration of the waiting period on May 29, 2024. While DOJ’s complaint alleges this was the sole basis for the relief in the proposed settlement, DOJ bolstered its claim against Legends with other conduct before and after Legends submitted the HSR filing: “the purpose and intent of Legends’ pre-closing conduct…are also informed by aspects of [its] course of conduct in connection with ASM.”

While not directly forming the basis of its alleged violation of the HSR Act, DOJ’s complaint cited the following examples of additional pre-closing conduct reflecting improper “purpose and intent”:

• Prior to reaching an agreement to acquire ASM, in an internal exchange a senior Legends executives emailed Legends’ then-CEO noting, “I assume we would rather have ASM chase this?” The then-CEO informed another executive, “we will find out if ASM is bidding as don’t want to both be bidding,” and set a calendar reminder for himself to speak with a senior ASM executive about the North Carolina RFP. There is no suggestion in the complaint that this contemplated discussion ever happened or that Legends or ASM changed their approaches with respect to this opportunity.
  
  
• In addition, in early 2023, before the parties reached agreement or filed HSR, Legends and ASM learned that a university was planning to develop a new arena. Both Legends and ASM initially took steps to form separate, independent bids for the new arena. However, after Legends and ASM were in discussions around the Acquisition, their posture changed, such that in May 2023 they decided that they would instead try to bid together. While constructing their joint bid, Legends and ASM exchanged competitively sensitive information surrounding the arena development project.
  
  
• Prior to acquisition negotiations, Legends and ASM were pursuing independent actions to try to win the development of a new arena. This posture changed in 2024, when, during the HSR waiting period, Legends and ASM pursued plans to submit a joint bid and exchange related information.

While DOJ alleges these additional examples show additional improper purpose and intent, DOJ did not allege any of these activities, whether considered individually or taken together, resulted in a violation of the HSR Act. However, DOJ’s inclusion of these additional allegations highlight DOJ’s ongoing focus on and concerns over pre-closing exchanges of information and other activities that may impact independent actions prior to the expiration of the HSR waiting period.

Takeaways

• HSR practitioners and M&A professionals have long understood the potential risks of gun jumping. While not as historic as DOJ’s litigation victory announced the same day as its settlement with Legends, this HSR Act enforcement action demonstrates the antitrust agencies’ increased focus on the parties’ pre-closing actions, including in matters such as this where DOJ did not have competitive concerns with the transaction and allowed the HSR waiting period to expire. Indeed, in our experience the agencies are increasingly focused on potential gun-jumping and pre-closing exchanges of information and are regularly asking about clean team procedures and other steps merging parties may have in place to prevent premature coordination of activities or exchanges of competitively sensitive information.
  
  
• Gun jumping concerns are not limited to the HSR Act. As DOJ’s complaint makes clear “other antitrust laws can also apply to pre-closing conduct of transaction parties,” which indicates that the agencies may be willing to use the Sherman or FTC Acts in future such cases, potentially implicating pre-closing behavior not within the confines of the HSR waiting period, if, unlike here, there is some indication that parties’ conduct may have impacted competition during the interim period prior to closing.
  
  
• Finally, DOJ’s wide-ranging relief is notable and highlights the need for parties to transactions to remain vigilant with respect to gun-jumping considerations.
  
  
  • First, the DOJ settlement enjoins Legends from sharing competitively sensitive information or coordinating competitive behavior in connection with potential future transactions unrelated to the ASM acquisition that was the subject of the enforcement action. 
    
    
  • Second, the settlement requires Legends to appoint an Antitrust Compliance Officer that is responsible for monitoring ongoing compliance with the settlement, including with respect to future transactions, and providing annual antitrust compliance training to certain executives of Legends and to its Board of Directors.
    
    
  • Third, the settlement requires Legends to pay a $3.5 million civil penalty for its alleged violation of the HSR Act. While the civil penalty is significant, DOJ’s conduct-related relief is a warning sign to companies and M&A professionals to implement and closely monitor antitrust guidelines to avoid costly investigations, potential fines and court-ordered limitations on conduct implicating negotiations, diligence and integration planning on future transactions.

Ensuring compliance practices are in place such that employees do not engage in problematic pre-closing conduct should be a well-considered part of the standard acquisition diligence and integration planning process.

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