The Federal Trade Commission today took action to resolve antitrust concerns surrounding a $5.2 billion cash-and-stock deal between private equity firm Quantum Energy Partners and natural gas producer EQT Corporation by approving a consent order that prevents entanglements between the two companies and the exchange of confidential, competitively sensitive information.
Quantum and EQT are direct competitors in the production and sale of natural gas in the Appalachian Basin, the largest natural gas-producing region in the United States. The proposed acquisition would make Quantum one of EQT’s largest shareholders and give Quantum – an active investor in natural gas production in the region – a seat on EQT’s board of directors, violating the antitrust laws and harming competition in this industry.
The FTC’s consent order delivers ground-breaking structural relief that prohibits Quantum from occupying an EQT board seat, requires Quantum to divest its EQT shares, prevents anticompetitive information exchange, unwinds a separate anticompetitive joint venture between the two entities, and imposes additional restraints to protect competition. This marks the FTC’s first case in 40 years that enforces Section 8 of the Clayton Act, which prohibits interlocking directorates, an arrangement that occurs when an officer or director of one firm simultaneously serves as an officer or director of a competing firm.
“As originally structured, this deal would have resulted in an illegal interlocking directorate, facilitated the exchange of confidential and competitively sensitive information, and otherwise stifled competition in the Appalachian Basin,” said Nathan Soderstrom, Acting Deputy Director of the FTC’s Bureau of Competition. “The Commission’s order provides innovative and comprehensive relief to protect competition, as well as the millions of Americans who rely on Appalachian Basin natural gas to heat and power their homes.”
Under the proposed deal, EQT, the nation’s largest natural gas producer, would acquire Quantum Energy’s THQ Appalachia I, LLC, also known as Tug Hill, the eleventh largest Appalachian Basin natural gas producer. In addition, EQT would acquire Quantum Energy’s THQ-XcL Holdings I, LLC, also known as XcL Midstream, which transports and processes Tug Hill’s natural gas production.
In return, Quantum would acquire up to 55 million shares of EQT stock and become one of EQT’s largest shareholders. The proposed transaction also granted Quantum the right to an EQT board seat, to be held by Quantum’s CEO or another Quantum designee. As the FTC’s complaint states, this arrangement creates an illegal interlocking directorate, which violates Section 8 of the Clayton Act.
The FTC also alleges that, by making Quantum one of EQT’s largest shareholders, the deal would give Quantum the ability to sway EQT’s competitive decision-making and access EQT’s confidential and competitively sensitive information. By enabling Quantum to communicate directly with EQT, access and exchange confidential business information, and influence or direct EQT’s competitive actions or strategies, this arrangement would create an unfair method of competition in violation of the FTC Act, the FTC’s complaint states.
In addition to the proposed transaction, the FTC’s complaint addresses a pre-existing joint venture between EQT and Quantum called The Mineral Company, which is involved in purchasing mineral rights in the Appalachian Basin. According to the FTC’s complaint, this joint venture relationship raises additional concerns regarding anticompetitive information exchange and harms competition in the acquisition of mineral rights.
The FTC’s proposed consent order resolves the Commission’s concerns while also clearly signaling the antitrust risks of excessive entanglements and anticompetitive information exchange. Additionally, the consent order sets important Commission precedent on the application of Section 8 of the Clayton Act, Section 5 of the FTC Act, and the use of structural remedies to address these theories of harm.
Specifically, the consent order would resolve the Commission’s competition concerns through provisions that:
- Prohibit Quantum from serving on EQT’s Board for the duration of the order and on the Board of any of the top seven Appalachian Basin natural gas producers, which account for a substantial majority of the market, without prior Commission approval.
- Require Quantum to sell its EQT shares by a non-public date certain.
- Require that during the period when Quantum owns EQT shares, the shares will be held in a voting trust, and any votes will be carried out by the trustee proportional to all other EQT shareholders.
- Require that for the duration of the order, Quantum is prohibited from acquiring additional EQT shares absent prior Commission approval.
- Require Quantum and EQT immediately to unwind TMC, including any noncompete provisions.
- Impose further limitations on future entanglements between EQT and Quantum, including prohibiting Quantum and EQT from entering into noncompete agreements other than those in connection with and ancillary to the sale of a business, assets, or company.
- Require EQT and Quantum to each design, maintain, and operate an antitrust compliance program.
- Impose additional provisions designed to ensure the effectiveness of the consent order, including the appointment of a monitor to track compliance.
Further details about the order can be found in the analysis to aid public comment.
The Commission vote to issue the complaint and accept the consent agreement for public comment was 3-0. Chair Lina M. Khan issued a separate statement in which she was joined by Commissioners Rebecca Kelly Slaughter and Alvaro M. Bedoya.
The FTC will publish the consent agreement package in the Federal Register shortly. Instructions for filing comments appear in the published notice. Comments must be received 30 days after publication in the Federal Register. Once processed, comments will be posted on Regulations.gov.
NOTE: The Commission issues an administrative complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions.