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Beretta wanted up to 25% of Ruger and two seats on its board. The FTC says two seats between competitors is an illegal interlocking directorate, and took the seats away — with 30 days for the public to object.

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On September 16 the Federal Trade Commission accepted a proposed consent order resolving antitrust concerns over a stock purchase agreement between Beretta Holding S.A. and Sturm, Ruger & Co. Under the deal Beretta would raise its stake to as much as 25 percent of Ruger's outstanding shares and appoint two members of Ruger's board — which the FTC alleges would create an illegal interlocking directorate under Section 8 of the Clayton Act. The order bars Beretta from causing anyone who is not independent of Beretta to join Ruger's board, requires 15 days' advance written notice before any such appointment, and bars Beretta from hiring or entering financial relationships with an independent director it nominated until a year after that director leaves. The Commission voted 2-0; the public has 30 days to comment.

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Section 8 of the Clayton Act is one of the oldest and least-discussed rules in American antitrust: broadly, the same person may not sit on the boards of competing companies. Not because of what they did — because of where they sit.

The deal, and the problem with it

Under their proposed deal, Beretta is seeking to acquire Ruger stock to increase Beretta's investment in Ruger to up to 25% of Ruger's outstanding shares. The proposed deal would allow Beretta to appoint two members of Ruger's board of directors, which the FTC alleges would create an illegal interlocking directorate arrangement.

Section 8 "generally prohibits directors and officers from serving simultaneously on the boards of competitors." Beretta and Ruger are, in the FTC's description, "two of the largest firearm manufacturers".

What the order actually does

The stake survives. The seats do not.

Beretta "will be prohibited from appointing or nominating anyone to serve on Ruger's board of directors unless that person is independent of Beretta."

Plus two provisions that close the obvious routes around it:

  • Notice. Beretta must "provide advance written notice to the Commission at least 15 days before appointing, designating, nominating, electing or otherwise causing any person to become a member of the board of directors of Ruger".
  • A cooling-off period. Beretta may not hire or enter a financial or other relationship with an independent director it nominated where that would involve "the exchange of nonpublic information received about Ruger to Beretta, until such independent director has ceased serving on the board of directors of Ruger for a period of one year."

An independent director who can expect a job from the investor afterwards is not independent in the way that matters. The year is the answer to that.

What the FTC says the harm is

Deputy Director of the Bureau of Competition Taylor C. Hoogendoorn: "Competition thrives best when the temptation to collude and share sensitive information isn't on the table". And, naming the interest the release says is served: "Competition between gunmakers helps ensure that Americans can exercise their Second Amendment rights."

The general risk, in the release's own words, is that interlocking directorates "can create opportunities for anticompetitive coordination between competitors, including through the sharing of competitively sensitive information."

The date

The vote to issue the complaint and accept the agreement for public comment was 2-0. "The public will have 30 days to submit comments on the proposed consent agreement package."

⚠ And the standard, which the FTC prints itself: the Commission issues an administrative complaint "when it has 'reason to believe' that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest." A consent order carries the force of law for future conduct once final. It is not a finding that anybody broke the law.

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