Coping With Antitrust Issues

Following the FTC’s hard line taken on Carlyle/Riverstone’s buyout of Kinder Morgan, sector-focused buyout firms may find themselves the target of antitrust scrutiny for “interlocking directorates.” An interlocking directorate occurs when one person serves as a director of two separate businesses that are in direct competition with each other; the situation is prohibited as anti-competitive under Section 8 of the Clayton Antitrust Act. Patricia Sullivan, a partner and co-chair of the Antitrust Practice Group at law firm Edwards Angell Palmer & Dodge LLP, offers here some tips on how to cope:

1) Industry-focused LBO firms should maintain a database that keeps track of what portfolio companies their professionals have board seats on. When contemplating a new investment, check that database to see if the deal could trigger a violation.

2) In situations where a violation is possible, consider acquiring the company without putting a representative on the board.

3) When you must give up a board seat, counterbalance that by trying to get a right of board visitation.This is when a representative of the firm is given the right to attend board meetings and to participate in some discussions with the board, but does not have a vote.

4) If you absolutely can not give up a board seat, create an internal screen that ensures the two board members share no confidential information and are truly acting independently.