The Federal Trade Commission (“FTC”), the Department of Justice Antitrust Division (“DOJ”), and the new proposed merger guidelines have all called out private equity transactions for particular scrutiny. The FTC just provided a concrete example of this attention, when it announced last week a proposed consent order between private equity firm Quantum Energy Partners (“Quantum”) and natural gas producer EQT Corporation (“EQT”), both of which are direct competitors for production and sale of natural gas in the Appalachian Basin. The proposed transaction involved EQT acquiring both Tug Hill, the eleventh largest natural gas producer in the Appalachian Basin, and XcL Midstream, which transports and processes Tug Hill’s natural gas output, for $5.2 billion ($2.6 billion in cash and up to 55 million shares of EQT stock).
The result is notable because the deal also included a seat for Quantum on EQT’s board, which the FTC has alleged is an unfair method of competition (“UMC”) in violation of Section 8 of the Clayton Act’s prohibition of interlocking directorates. In November 2022, we wrote on FTC Chair Khan’s expansive policy statement defining the Agency’s current view on its Section 5 UMC authority and its application to “a series of mergers or acquisitions” which may not violate the antitrust law singularly but cumulatively “tend to bring about the harms that the antitrust laws were designed to prevent.” This is the first time in 40 years that the FTC has brought a case enforcing Section 8 of the Clayton Act’s prohibition on interlocking directorates, or the practice of serving on two of more corporate boards for competitors. The DOJ has also been actively carrying out its 2022 promise to reinvigorate enforcement of Section 8 of the Clayton Act.
The proposed consent order requires Quantum to divest its EQT shares swiftly and prohibits Quantum for occupying an EQT board seat. The order goes even further than this structural fix by prohibiting Quantum from serving on any other competitor board without prior approval from the Commission, requiring both firms to implement an antitrust compliance program, and prohibiting the firms from entering into Noncompete agreements other than those in connection with and ancillary to the sale of a business, assets, or company.
The Analysis to Aid Public Comment released by the Commission states that the proposed transaction raises concerns that “Quantum or EQT could have access to each other's competitively-significant, non-public information and could participate in, or have influence over, competitive decision-making at each firm.” This move comes at a time where the federal antitrust agencies have been increasingly focused on access to and sharing of competitively sensitive information between rivals. Both the FTC and DOJ withdrew longstanding information sharing guidance this year, and the DOJ’s competitive theory last year in the UnitedHealth-Change acquisition focused on the merged firm’s access to competitively sensitive information about insurance claims in the health care industry.
Chair Khan released a separate statement, focusing on the potential risks to competition as “particularly concerning given the dense and tangled web of co-investments, joint operations, and other methods of coordination between and among natural gas producers and investors in the Appalachian Basin.” Both antitrust agencies have scrutinized private equity deals in the past year, with the draft release of new merger guidelines focusing on private equity operations in Guideline 9. The agencies have stated that a “firm that engages in an anticompetitive pattern or strategy of multiple small acquisitions in the same or related business lines may violate Section 7 [of the Clayton Act], even if no single acquisition on its own would risk substantially lessening competition or tending to create a monopoly.”
The proposed order is significant because of its broad structural and behavioral requirements, the FTC’s revived enforcement of Section 8 of the Clayton Act, and the application of the Commission’s standalone Section 5 enforcement authority to Quantum’s ability to “sway or influence EQT’s competitive decision-making and to access EQT’s competitively sensitive information.” Chair Khan noted that the proposed order limits the ability of the two firms to share competitively sensitive information through their TMC joint venture by requiring them to unwind the JV and “structurally eliminate[s] key mechanisms for undue influence and information exchange” by prohibiting Quantum from occupying an EQT board seat and requiring divestiture of its EQT shares. Khan also suggested the proposed consent order puts industry on notice that “they must follow Section 8 no matter what specific corporate form their business takes” and that the proposed order limits future entanglements between the firms.
If you have questions about federal merger review or a particular transaction, please contact one of the individuals listed above or your regular Mintz attorney.
 See Statement of Chair Lina M. Khan Joined by Commissioner Rebecca Kelly Slaughter and Commissioner Alvaro Bedoya, In the Matter of EQT Corporation, FTC File No. 221-0212 (Aug. 16, 2023), available here.
 Analysis to Aid Public Comment, supra note 2, at 1.
 Statement of Chair Lina M. Khan, supra note 3, at 7.