July 28, 2016

Clayton Act Takeaways From Tullett Prebon-ICAP Deal

Published by Competition Law360, Mergers & Acquisitions Law360, and Securities Law360

Law360, New York (July 28, 2016, 4:05 PM ET) -- On July 14, 2016, the U.S. Department of Justice required ICAP PLC and Tullett Prebon PLC, two competing brokerage companies, to restructure their proposed $1.5 billion transaction to address DOJ concerns that the proposed transaction would violate the antitrust laws. One of the DOJ's concerns related to Clayton Act Section 8,1 which forbids, except under certain narrowly defined safe harbors, a person from serving "as a director or officer in any two corporations ... that are ... competitors, so that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws."2

This settlement serves as an important reminder that Clayton Act Section 8 is not only a compliance issue, but also an important consideration in mergers and acquisitions and other areas that may affect the composition of a board of directors.

Section 8 of the Clayton Act

Overlapping directors among companies today typically result from the desire of each company to seek the most qualified and experienced outside directors. An individual with extensive familiarity with a particular industry due to his or her professional involvement in that industry is frequently viewed as a desirable outside director for a second company in that industry.

However, because this type of dual service (e.g., service as an officer or director at two different competing companies) can lead to improper disclosure of confidential information or other anti-competitive practices that can be difficult to detect, Section 8 imposes absolute prohibitions on such dual service (subject to the exceptions discussed below), regardless whether any anti-competitive conduct in fact occurs.

Jurisdictional Thresholds

For Section 8 to apply, the following jurisdictional thresholds must be met:

  • The combined "capital, surplus and undivided profits" (i.e., net worth) of each of the corporations exceeds $31,841,0003 (indexed annually)4; and
  • Each corporation is engaged in whole or in part in interstate commerce; and
  • The corporations are competitors "by virtue of their business and location of operations …, such that the elimination of competition by agreement between them would constitute a violation of any of the antitrust laws."5


However, because certain interlocks are viewed to pose little risk of significant antitrust injury, Section 8 exempts interlocks for which:

  • the competitive sales6 of either corporation are less than $3,184,100 (indexed annually)7; or
  • the competitive sales of either corporation are less than 2 percent of that corporation's total sales8; or
  • the competitive sales of each corporation are less than 4 percent of that corporation's total sales.

It is important to note that even if an interlock is exempted under Section 8 because the level of competition is viewed as de minimis, that exemption does not apply to anti-competitive conduct that is prohibited under other antitrust laws. The interlocked companies can still be held liable for any Sherman Act Section 1 violations that might arise as a result of the common directorship. The FTC has also used Section 5 of the FTC Act, which prohibits "unfair or deceptive acts or practices in or affecting commerce," to enforce the "spirit and policy" of Section 8, even where the challenged interlock was not clearly prohibited by Section 8.9 As a result, counsel should be cognizant that necessary guidelines and firewalls are in place to ensure that competitively sensitive material is not shared between competitors, even where parties may be exempt from Section 8 liability.


Both the interlocked corporations and the interlocking directors themselves can be found in violation of Section 8.10 Section 8 may be enforced by the Department of Justice, the Federal Trade Commission and private plaintiffs, including state attorneys general. Typically, the remedy for a prohibited interlock is injunctive relief, but private parties also may seek treble damages[A1].

ICAP/Tullett Prebon Merger

Tullett Prebon and ICAP are two British securities brokerage businesses, both offering a variety of brokerage services, including voice- and electronic-based brokering. In November, 2015, Tullett Prebon announced it planned to acquire ICAP's voice brokerage businesses.11 In return, ICAP would have received: (1) a 19.9 percent stake in Tullett Prebon and (2) the right to nominate one member of Tullett Prebon's board of directors.12 In addition, ICAP shareholders would have received a 36.1 percent stake in Tullett Prebon.13 Following the transaction, although ICAP would have exited the voice brokerage business, ICAP planned to remain active in electronic trading brokerage.14

Because ICAP would still be competing for electronic brokerage business against Tullett Prebon, the DOJ alleged that ICAP's right to nominate one member of the Tullett Prebon board of directors would violate Clayton Act Section 8. Although the text of Section 8 prohibits a "person" from simultaneous service for two competing companies, courts and the antitrust authorities have interpreted this to also prohibit corporations from holding the right to nominate shareholders or directors at competing corporations.15 As a result, the DOJ required ICAP and Tullett Prebon to restructure the transaction such that ICAP would not retain any right to nominate a Tullett Prebon director.

In addition, the DOJ required the parties to restructure the transaction such that ICAP shareholders would receive 56 percent stake in Tullett Prebon (as opposed to ICAP receiving 19.9 percent and ICAP shareholders receiving 36.1 percent, as originally agreed). Partial acquisitions such as the one originally contemplated can sometimes raise antitrust concerns, particularly if the DOJ believed that following the acquisition: (1) ICAP would be able to influence Tullett Prebon's competitive conduct, (2) ICAP's incentives to compete with Tullett Prebon might be reduced, or (3) ICAP might gain access to Tullett Prebon's competitively sensitive, nonpublic information.16 Thus, restructuring the transaction to allow ICAP shareholders, but not ICAP itself, to hold the additional 36.1 percent stake helped to resolve DOJ concerns regarding the potentially "cozy relationship among competitors."17


As the ICAP/Tullett Prebon merger demonstrates, compliance with Section 8 is an important consideration in mergers and acquisitions. This is especially true if the merging parties are negotiating for the rights to nominate officers or directors as part of a transaction or where a buyer is acquiring a seller's interest in another entity or a portfolio company, which could grant the seller rights to nominate directors or officers.

For example, in 2007 CommScope sought to acquire Andrew Corporation, including its interest in Andes Industries, which included the right to appoint directors to the Andes board of directors.18 The DOJ objected, alleging in part that CommScope's right to appoint Andes directors would violate Section 8, as both companies competed in the manufacture of drop cable.19 The matter was resolved when CommScope agreed to divest the interest in Andes Industries, which remedied the Section 8 issue.20

Moreover, Section 8 issues can also arise for companies outside of an acquisition context. For example, if shareholders elect a new director who simultaneously holds another officer or director position at a competitor, this could implicate Section 8. Or, an interlock that once fell within Section 8's safe harbor might become problematic if one company's sales in competition with the second company increases, whether through product innovation or sales growth.21

The DOJ's recent focus on Section 8 is a good reminder for companies and counsel to do their due diligence regarding the potential implications of any changes in board representation, in order to ensure that such changes comply with Section 8.

—By Michael B. Bernstein and Francesca M. Pisano, Arnold & Porter LLP

Michael Bernstein is a partner and Francesca Pisano is an associate in Arnold & Porter's Washington, D.C., office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

  1. Tullett Prebon and ICAP Restructure Transaction after Justice Department Expresses Concerns about Interlocking Directorates (July 14, 2016), {hereinafter "DOJ Press Release"}.

  2. 15 U.S.C. § 19 ("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…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.").

  3. See Revised Jurisdictional Thresholds for Section 8 of the Clayton Act, 78 Fed. Reg. 2675 (Jan. 14, 2013).

  4. FTC Announces New Clayton Act Monetary Thresholds for 2016, Jan. 21, 2016.

  5. 15 U.S.C. § 19.

  6. The term "competitive sales" is defined as "the gross revenues for all products and services sold by one corporation in competition with the other, determined on the basis of annual gross revenues for such products and services in that corporation's last completed fiscal year." Id.

  7. FTC Announces New Clayton Act Monetary Thresholds for 2016, Jan. 21, 2016.

  8. "Total sales" means "the gross revenues for all products and services sold by one corporation over that corporation's last completed fiscal year." Id.

  9. Kraftco Corp., 89 F.T.C. 46 (1977).

  10. See TRW, Inc. v. FTC, 647 F.2d 942, 948-49 (9th Cir. 1981).

  11. Building the World's Best Operator in Hybrid Voice Broking and Information Services, at 11, Tullett Prebon plc (Nov. 11, 2015).

  12. Id. at 10.

  13. Id.

  14. DOJ Press Release.

  15. Reading Int'l v. Oaktree Capital Mgmt., 317 F. Supp. 2d 301 (S.D.N.Y. 2003); United States v. Cleveland Trust Co., 392 F. Supp. 699 (N.D. Ohio) 1974), aff'd mem., 513 F.2d 633 (6th Cir. 1975).

  16. U.S. Dep't of Justice & Federal Trade Comm'n, Horizontal Merger Guidelines, at 34 (2010).

  17. DOJ Press Release.

  18. US v. Commscope Inc., 2008 WL 2978124 (D.D.C. 2008).

  19. Competitive Impact Statement, US v. CommScope, Inc. and Andrew Corp., 1:07-cv-02200 (Dec. 6, 2007).

  20. Id. at 10. The DOJ and Federal Trade Commission also have required remedies that resolve potential interlocking boards in other matters, although in some situations have not specifically cited Section 8. See, e.g., In the Matter of TC Group, L.L.C. et al., FTC File 061-0197, 2007 WL 901803 (FTC March 14, 2007); Modified Final Judgment, US v. Comcast, 1:11-cv-00106 (D.D.C. Feb. 31, 2013).

  21. In the second scenario, where a legal interlock becomes illegal under Section 8 through sales or revenue growth, Section 8 allows for one year to "cure" the violation. See, e.g., 15 U.S.C. § 19(5)(B) ("When any person elected or chosen as a director or officer of any corporation…is eligible at the time of his election or selection to act for such corporation in such capacity, his eligibility to act in such capacity shall not be affected by any of the provisions hereof by reason of any change in the capital, surplus and undivided profits, or affairs of such corporation from whatever cause, until the expiration of one year from the date on which the event causing ineligibility occurred.").


Francesca Pisano
Francesca M. Pisano
Senior Associate
Washington, DC
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