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In December, the U.S. Department of Justice (DOJ) and U.S. Federal Trade Commission (FTC) released updated merger guidelines, which had been in the works since the beginning of 2023. The guidelines offer a view of what these agencies will consider as they examine the evidence of a deal and how that evidence may be persuasive one way or the other. One of the boundaries set in the December filing: any combined market share greater than 30% is potentially problematic.
“That’s a very aggressive posture toward any potential deal,” Jeffrey Oliver, a partner in the Washington, D.C., office of Baker Botts, told me. “It’s been decades or longer since any court has found a problem with a deal in which the combined shares are 30%, the shares almost invariably have to be much higher than that for there to be a viable antitrust claim.”
It doesn’t mean that a deal resulting in a market share of 30% or more will be blocked; it simply indicates the agencies want dealmakers to know they are now concerned about deals within that ballpark.
Questions of market share have always driven antitrust law because it has always been the best indicator and the biggest metric on which deals are judged from an antitrust perspective, said Oliver, whose practice is based on antitrust law with an emphasis on U.S. and international merger reviews.
Traditionally, a deal that presents a market share between 40% and 50% might be subject to an extended review with perhaps some enforcement action. A deal representing market share between 30% and 40% traditionally has not faced much scrutiny.
Defining the “market” presents some discretion whether pitching a deal or analyzing it. The Exxon Mobil acquisition of Pioneer Natural Resources will give the pro forma company some 15% of the Permian Basin market share, Pioneer CEO Rich Dealy said in an exclusive interview with Hart Energy in January.
Extrapolate beyond the Permian, and the Exxon that emerges from closing will control 5% of U.S. production and 3% of global production, Dealy said.
It’s a lot, but still a significant distance from 30%. And, as Oliver pointed out during our chat, “Most everyone knows that crude trades globally and the prices are largely determined by factors that are global, not local.”
Nevertheless, those companies, as well as Chevron and Hess Corp., received formal Second Request notifications from the FTC.
The most recent megamerger announcement between Chesapeake Energy and Southwestern Energy—the subject of months’ worth of speculation—has a sizeable market share of some 25% in the Haynesville Shale and more than one-fifth of the Marcellus Shale.
This deal, too, is likely to face FTC scrutiny, but it is still below the 30% threshold.
Insiders say it’s unlikely the FTC’s attention will derail the recent deals, but it could have a temporary chilling effect on the timing of when future deals are announced in a heated election year. Senate Democrats have demanded investigations of the Exxon and Chevron deals.
Still, upstream deals rarely generate Second Request notes from the FTC. There are exceptions, however. In 2022, a Second Request from the FTC ultimately led to enforcement action in which EnCap Investments agreed to sell EN Energy’s entire Utah oil business to resolve federal concerns that the deal would lead to higher prices in the region. EnCap made the divestiture, selling the assets to Crescent Energy, which created a new competitor in the Uinta Basin.
The new guidance does give the current leadership a way to differentiate itself from previous administrations.
“It’s just a very easy way for them to say, ‘We’re different. We’re more aggressive. We’re not going to let deals fly through without review that maybe would have flown through under prior administrations,’” he said. “I think that’s why they chose the 30%. It’s a very flashy number … I don’t think there was much math behind it.”
Nor is there much—if any—precedent behind it.
“It’s a way to advertise themselves as being very aggressive, but it does not mean— it absolutely does not mean—that deals presenting a post-transaction, 30% market share are going to invite enforcement to action,” Oliver said. “That would be shocking.”
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