Until closing, parties to a merger, acquisition, or similar transaction must remain independent competitors. Failure to do so is known as “gun jumping” and can be a simultaneous violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR Act”) and Section 1 of the Sherman Act.
The doctrine of “gun jumping” prohibits an acquiring party from exercising operational control over the business or assets of a target prior to receiving clearance under the HSR Act because this control amounts to prematurely taking “beneficial ownership” of the target or its assets. After clearance (or if an HSR Act filing was not required), the failure to remain independent competitors until closing could lead to allegations of unlawful collusion under Section 1 of the Sherman Act. The current penalty for “gun jumping” under the HSR Act is $41,484 per day. Sherman Act violations can be subject to civil and criminal penalties.
Parties involved in mergers, acquisitions, or similar transactions must carefully balance the buyer’s legitimate interests in ensuring that the post-closing business maintains its pre-closing value, as well as other justifiable goals (such as smooth post-consummation integration), with the parties’ need to protect themselves from antitrust claims and violations. Setting out guidelines well in advance can help the parties prepare for pre-closing activities and manage the attendant antitrust risk associated with these activities.