On August 16, 2023, the Federal Trade Commission announced that it has settled, via a proposed consent order, a pending antitrust investigation into a proposed acquisition in which a private equity firm, Quantum Energy Partners (“Quantum”), was integrally involved with natural gas producer EQT Corporation (“EQT”).[1] The conduct remedies include Quantum agreeing to relinquish seats on a competitor’s board, which is particularly important for three reasons.  First, this action against a private equity firm reaffirms efforts previously announced by both the FTC and the U.S. DOJ’s Antitrust Division to address competitive concerns that arise when private equity firms financially back companies in highly concentrated markets; second, this is the first action in four decades by the FTC involving Clayton 8 interlocking directorates[2]; and third, this appears to be the first instance in which Clayton 8 has been applied to an entity that is not a corporation, despite the language in Clayton 8 that expressly limits the statute to corporations.  

The key terms of the FTC’s Quantum proposed consent order include the following:

  • Prohibit Quantum without prior Commission approval from serving on EQT’s Board for the duration of the order and on the Board of any of the top seven Appalachian Basin natural gas producers, which account for a substantial majority of the market.
  • Require Quantum to sell its EQT shares by a non-public date certain.
  • Require that during the period when Quantum owns EQT shares, the shares will be held in a voting trust, and any votes will be carried out by the trustee proportional to all other EQT shareholders.
  • Require that for the duration of the order, Quantum is prohibited from acquiring additional EQT shares absent prior Commission approval. 
  • Require Quantum and EQT immediately to unwind TMC,[3] including any noncompete provisions. 
  • Impose further limitations on future entanglements between EQT and Quantum, including prohibiting Quantum and EQT from entering into noncompete agreements other than those in connection with and ancillary to the sale of a business, assets, or company. 
  • Require EQT and Quantum to each design, maintain, and operate an antitrust compliance program. 
  • Impose additional provisions designed to ensure the effectiveness of the consent order, including the appointment of a monitor to track compliance.

Given the federal agencies’ focus on interlocking directorates, clients would be well advised to seriously evaluate Clayton 8 risks when private equity firms hold board or officer positions in multiple companies operating in the same industry.  Wiggin and Dana routinely advises clients in connection with the full range of antitrust matters, including potential transactions and representation before the DOJ and FTC. Our clients in those matters include family offices, private equity funds, and private equity-backed companies across a wide range of industries and geographies.

[1] https://www.ftc.gov/news-events/news/press-releases/2023/08/ftc-acts-prevent-interlocking-directorate-arrangement-anticompetitive-information-exchange-eqt

[2] Section 8 of the Clayton Act, 15 U.S.C. § 19, basically prohibits competitive corporations from having either officers or directors in common.  There are safe harbors built into Clayton 8 that provide de minimis exceptions to its applicability, including the following: The competitive sales of either company are less than 2% of that company’s total sales; the competitive sales of each company are less than 4% of that company’s total sales; or the competitive sales of either company are less than $4,525,700 as of 2023.

[3] TMC, according to the FTC press release, is “a pre-existing joint venture between EQT and Quantum called The Mineral Company, which is involved in purchasing mineral rights in the Appalachian Basin.”