United States: How Fund Managers Are Affected By Antitrust Reporting Requirements And Interlocking Officer And Director Rules

Last Updated: February 20 2014
Article by Renée Eubanks

The Hart Scott Rodino Act (HSR) provides a federal regulatory scheme to monitor the acquisition of voting securities and assets in an effort to monitor whether such acquisitions may have anticompetitive effects on the marketplace. Section 8 of the Clayton Act has interlocking director/officer rules that may affect fund managers who find themselves holding the voting securities of competing entities and who seek to manage such entities by appointing directors and/or officers that ultimately act on behalf of the fund. This article summarizes some basic principles contained in this regulatory scheme.

When does an acquisition have to be reported under the HSR Act?

Effective February 24, 2014, all acquisitions involving the voting securities of an entity are permissible without notifying the Federal Trade Commission or the Department of Justice (the antitrust agencies) if the acquisition is valued at less than US$75.9 million. Therefore, if a fund sought to acquire a position of US$75.9 million or more of the voting securities or assets of another entity, or if a certain acquisition will result in the fund holding US$75.9 million or more, the acquisition must be reported to the antitrust agencies before the acquisition is completed. Once the acquisition is reported, the antitrust agencies have 30 days to review the acquisition. If the antitrust agencies determine that the acquisition does not harm competition, the parties to the acquisition are notified and the acquisition may then be completed.

Early termination

In order to expedite the review process, the parties to the transaction may request "early termination" by requesting that the antitrust agencies provide notification prior to the expiration of the 30-day waiting period, that no antitrust issues have been found and that the transaction may proceed without further inquiry. It should be noted, however, that when the antitrust agencies comply with a request for early termination they report the early termination in the Federal Register which, since it is a public document, will result in the general public becoming aware of the pending transaction when the early termination notice is published.

Further governmental inquiry

In a recent transaction the granting of early termination occurred within 10 business days, but such a time frame usually depends upon the backlog of the antitrust agencies and the complexity of the issues involved. That complexity could result in further inquiry by the antitrust agencies, ranging from a mere telephone inquiry to a full-blown investigation. In a typical purchase agreement, buyers and sellers generally agree to cooperate to take all necessary actions to obtain HSR approval, to share all information (except for confidential business information) required for preparation and submission of required filings under the HSR Act and to inform each other of any oral or written communication with the antitrust agencies regarding the HSR filing, and also agree not to participate in any meeting or discussion absent advance notice to the other side, or when permitted by such government agencies.

Inasmuch as the general custom is to submit a signed purchase agreement with the HSR filing (although a term sheet with sufficient detail will also suffice), the parties usually negotiate their respective obligations involving the cost of responding to governmental inquiries. At the outset, the HSR filing fee (which ranges from US$45,000 to US$280,000 depending on the size of the transaction), absent an agreement to the contrary, is typically paid by the buyer. Both parties usually covenant that they will use commercially reasonable efforts to respond to requests for additional information and to resolve objections, if any, that are or could be raised by the antitrust agencies with respect to the contemplated transaction. Since a request for additional information and/or directives by the antitrust agencies could take many forms, depending upon bargaining position, a buyer usually requests that under its obligations pursuant to the purchase agreement it should not be required to

  • litigate or contest in any manner any administrative or judicial proceeding or any court order,
  • pay any amounts (other than the payment of filing fees and expenses and fees of counsel),
  • commence or defend any litigation,
  • agree to any limitation on the operation or conduct of the business acquired or as consolidated,
  • waive any of the conditions of closing contained in the purchase agreement or
  • make any proposal, execute or carry out any contract or submit to any court order providing for (A) the sale, license of, disposition or holding separate of any of the assets of the seller or any of the properties or assets of the buyer or any of its affiliates or (B) the imposition of any limitation or regulation on the ability of the buyer or any of its affiliates to conduct freely their respective business or exercise full rights of ownership of the seller. Each of the foregoing items are often the subject of intense negotiation.

The Clayton Act

When a fund holds equity positions in more than one company within the same industry and seeks to participate in the management of those companies by appointing officers and directors, specific care must be taken to make sure that the appointments comply with interlocking director/officer rules specified in Section 8 of the Clayton Act. The act addresses whether an individual may serve simultaneously as a director or officer of two companies that are considered competitors. Specifically, Section 8 of the act states: "(a) 1. no person shall, at the same time serve as a director or officer in any two corporations (other than banks, banking associations, and trust companies) that are — A. engaged in whole or in part in commerce; and B. by virtue of their business and location of operation, competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws..." [emphasis supplied]

In order for Section 8 of the Clayton Act to apply, both subsections A and B listed above must be true. Although there is a safe harbor with regard to the amount of commerce needed to trigger subsection A (each competitor must have, in the aggregate, capital, surplus and profit of not less than US$29,945,000, except that such companies will not be covered if competitive sales are less than US$2,994,500), most major businesses will be considered as engaging in commerce under the act. Therefore, the most reliable carve-out in the act lies in the language specified under subsection B. In order to be free of the mandate of the act as it relates to subsection B, it must be the case that an agreement between two entities not to compete would not result in a violation of antitrust laws.

The test to determine whether or not an agreement not to compete would result in a violation of antitrust laws turns on the issue of control. For example, to the extent that Entity A owns at least 50 percent of Entity B (an entity that also competes with Entity A), or has the right to receive at least 50 percent of the profits or losses of such entity upon its dissolution, Entity A is considered a "control entity," and thus may appoint its directors and officers to serve as directors and officers of Entity B. Although the control entity and Entity B may choose to compete in the marketplace, the antitrust laws do not mandate that an entity compete with itself, and thus the elimination of such competition does not result in a violation of antitrust laws. However, if Entity A's controlling interest in Entity B dipped below 50 percent, Entity A would no longer be considered a control entity. Under these circumstances, if Entity A and Entity B are considered competitors in the marketplace, the prohibition in Section 8 of the Clayton Act on interlocking officers or directors would likely apply. Accordingly, it is important for fund managers holding interests in companies operating within the same industry to review their voting security positions held in companies that may be competitors before appointing officers and directors to work on behalf of the fund and participate in the management of those companies.


The HSR rules and the control rules that govern Section 8 of the Clayton Act are complex. The failure to file an HSR notification with the antitrust agencies when applicable is a violation of federal law and subjects the acquiring party to a fine of up to US$16,000 per day until such filing is completed. The antitrust agencies may also institute civil proceedings for a failure to file and for violations of Section 8 of the Clayton Act. Whenever possible, legal counsel should be consulted in the early stages of a proposed transaction so that a full analysis of the structure of the transaction and HSR rules can be made in order to determine whether an HSR filing is required. Lastly, when a fund manager takes positions in multiple companies operating in the same industry, a thorough review of the manager's equity positions in such companies, as well as whether such companies may be considered competitors, must be undertaken before the fund appoints directors and officers to assist in the management of such companies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
30 Jan 2019, Other, Chicago, United States

Please join us on January 30, 2019, for the Fifth Annual Courageous Counsel Leadership Institute. This year's theme is "Risk and reward: Creating a culture that promotes innovation, change and growth.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions