DOJ Signals Renewed Focus on Interlocking Directorates
Last week, the DOJ’s Antitrust Division signaled a renewed focus on interlocking directorates — situations where competing corporations have common officers or directors. While generally it is permissible to serve on the boards of multiple companies, doing so becomes an issue under antitrust law where those companies compete. In a speech on December 14, Principal Deputy Assistant Attorney General Andrew Finch highlighted that the Antitrust Division is looking “more closely” at interlocks, including in the tech and media industries. As Finch noted, “[a]s today’s tech platforms start competing against traditional industries and each other in new ways, this can create Section 8 and common ownership issues. Changes in technology and business strategy can cause two companies to become competitors in markets where they previously did not compete.” Also of particular note is Finch’s comment that the Antitrust Division is considering whether the prohibition applies to newer types of corporate entities — this could potentially include limited liability corporations and master limited partnerships, for example.
Section 8 of the Clayton Act prohibits, with certain exceptions, competing corporations from having common directors or officers, if the companies have revenues that meet annually revised thresholds. Section 8 is viewed as a per se statute, which does not require competitive injury — that is, the existence of an interlock between competing companies is enough to cause a violation, unless one of the statute’s “de minimis exceptions” is met, carving out companies that have competitive sales below certain thresholds.
While the statute provides for a one-year “grace period,” companies need to be aware of potential interlocks, as they can be the focus of DOJ and FTC scrutiny in the M&A context. For example, in 2016, the DOJ announced the restructuring of a $1.5 billion transaction between Tullett Prebon and ICAP, under which ICAP would acquire 19.9 percent of Tullett Prebon, an electronic brokerage services firm: “[g]iven that ICAP and Tullett Prebon would continue to compete after the transaction, the department had serious concerns that ICAP’s ability to nominate a Tullett Prebon board member would create an interlocking directorate in violation of Section 8 of the Clayton Act.”
Further, in light of Finch’s comment that the DOJ is “currently thinking about” the issue of “whether Section 8 applies to corporate entities created after the statute was passed in 1914” — firms need to consider the associated risks involved in simultaneous board service at various forms of corporate entities. This issue and the renewed focus on Section 8 serve as a reminder to private equity and other firms which might have board representation rights — Section 8 may be implicated even where two different people are appointed to competing boards, if they are acting as agents or “deputies” of a single firm.1 Investment firms should consider these issues not only when they are appointing board members at portfolio companies, for example, but also when wholly owned subsidiaries become independent entities through IPOs or other means. While a corporation generally cannot conspire with itself or its wholly owned subsidiaries,2 this calculus changes when subsidiaries become independent — legally permissible joint board service may suddenly run afoul of Section 8.
Thus, in making any acquisition or investment, just as in taking any simultaneous board assignment, it is important to track each companies’ competitive offerings and remain abreast of changes and developments in markets to determine when and to what extent companies might be competing, even where they previously were not.
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2 Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984).
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