The Department of Justice Antitrust Division (DOJ) announced January 18 that Duke Energy Corporation (Duke) agreed to pay $600,000 to settle charges that it violated the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) waiting period. Duke, according to a DOJ complaint filed in the United States District Court for the District of Columbia, took control of a power plant it intended to acquire from Calpine Corporation (Calpine) prior to filing an HSR notification form and expiration of the HSR waiting period. This settlement is a strong reminder that companies can be charged and fined for failing to abide by HSR regulations.

Obtaining control of a target entity in a reportable transaction prior to expiration of the HSR waiting period is known as “gun jumping.” In announcing the settlement, Acting Assistant Attorney General Renata Hesse of the Antitrust Division cautioned that “the Antitrust Division remains vigilant against such ‘gun-jumping’ and takes action when parties to a reportable transaction stop competing independently before the review period has ended.”

Under the HSR Act, companies agreeing to transactions that meet the size-of-transaction and size-of-person thresholds must file premerger notification forms and provide related documents to the DOJ and Federal Trade Commission. The parties must then abide by the applicable waiting period requirements, during which time the agencies conduct an antitrust review, prior to closing. Importantly, the acquiring party cannot take “beneficial ownership” of the assets or entities it seeks to acquire until the waiting period has expired or until early termination has been granted.

In the Duke case, after agreeing to a term sheet for Duke’s purchase of the Osprey natural gas power plant from Calpine, the parties entered a “tolling agreement.” Under the tolling agreement, according to the DOJ complaint, Duke made all significant competitive decisions for the Osprey plant, controlling both the acquisition of natural gas for the plant and the distribution of power generated by the plant. According to the DOJ, after the tolling agreement, Duke “gained the profit or loss from sale” of the plant’s energy, and thus Duke took beneficial ownership of the asset it intended to acquire. The required HSR notification and report form, which valued the transaction at $166 million, was not filed until months after the tolling agreement was executed. The proposed settlement still requires court approval.

Client Alert 2017-025