The FTC’s consent order addresses a $5.2 billion cash-and-stock deal between Quantum, a private equity firm holding entities producing natural gas, and EQT, the nation’s largest producer of natural gas. The transaction required EQT to pay $2.6 billion in cash and up to 55 million shares of stock in exchange for two Quantum-controlled entities, both of which are natural gas companies operating in the Appalachian Basin area. The deal would have made Quantum one of EQT’s largest shareholders, with EQT agreeing to facilitate the appointment of a Quantum-designated member to its Board.
An administrative complaint issued by the FTC in connection with the consent order alleged the transaction created “an interlocking directorate in violation of Section 8 of the Clayton Act” by threatening two potential overlaps. First, Quantum’s CEO would “join the EQT [B]oard while simultaneously serving as and sitting on Quantum’s Investment Committee.” Second, a “Quantum-controlled representative [would] join the EQT Board.” Notably, it is not clear from the complaint whether the alleged interlock was with Quantum itself, or with one of the corporations Quantum controls.
The consent order resolves the FTC’s complaint by requiring Quantum to refrain from taking a seat on EQT’s Board. Further, it prevents Quantum from serving on the board of any of the top seven natural gas producers within the Appalachian Basin without prior approval from the FTC. Quantum must also divest its shares in EQT and refrain from acquiring additional EQT shares without prior approval from the FTC. This prior approval requirement is consistent with a prior FTC statement issued in the early months of the Biden administration.
Pursuant to the consent decree, Quantum stipulated to “satisfy the ‘corporation’ and ‘board of directors’ requirements under Section 8 of the Clayton Act, such that ordinary prohibitions would apply as to interlocking directors and officers between them and their other entities.”
The Division’s press release regarding the Pinterest/Nextdoor enforcement action is sparse on details, including the basis of the perceived interlock.. The Division’s press release makes clear, however, that “[e]nforcement involving interlocking directorates will continue to be one of the top priorities of the Antitrust Division.”
Past is Prologue?
These Section 8 developments offer insights into how federal enforcers may analyze and address perceived interlocking directorates. EQT-Quantum marks a departure from the FTC prior informal enforcement posture regarding Section 8, which generally relied on voluntary compliance, informal divestment, and “self-policing” The FTC’s more formal enforcement action reflects a potential return to the FTC’s efforts to rely on its adjudicatory process instead of being satisfied with informal enforcements and compliance. Prior to the mid-1980s, the FTC more often relied on its administrative quasi-judicial powers to address its interlocking concerns under Section 5 of the FTC Act. If DOJ were to challenge similar conduct, it would have to file a complaint in federal district court.
The consent order further clarifies the current FTC leadership’s position on whether Section 8 applies to unincorporated business organizations. Chair Khan, joined by Commissioners Rebecca Kelly Slaughter and Alvaro Bedoya, argued in a statement accompanying the FTC’s enforcement action: “Section 8 applies to businesses even if they are structured as limited partnerships or limited liability corporations.”
It remains to be seen whether courts will agree with this interpretation. Some have argued that because the statute mentions only “corporations” and Congress appreciated the modern significance of unincorporated business entities when it revisited the Clayton Act in 1990, a more limited construction may be appropriate.