The Federal Trade Commission is moving to limit Beretta Holding’s influence over the board of rival gun manufacturer Sturm, Ruger & Co. after raising concerns that a proposed stock deal could create an illegal connection between competing companies.
The Federal Trade Commission announced September 16 that it had accepted a proposed consent order addressing antitrust concerns arising from an agreement between Beretta Holding S.A. and Sturm, Ruger & Co. Inc.
Beretta, a subsidiary of Upifra S.A., is seeking to increase its investment in Ruger to as much as 25% of Ruger’s outstanding shares. The companies’ agreement would have allowed Beretta to appoint two members to Ruger’s board.
The FTC alleges that arrangement would violate federal antitrust law.
FTC Raises Concerns About Competing Companies Sharing Directors
The FTC’s administrative complaint alleges that the agreement violates Section 8 of the Clayton Act and Section 5 of the Federal Trade Commission Act.
Section 8 of the Clayton Act addresses what are known as “interlocking directorates,” which can occur when competing corporations share directors or officers. The FTC says preventing those arrangements reduces opportunities for competitors to coordinate business decisions or exchange commercially sensitive information.
Under the proposed order, Beretta would be prohibited from appointing, nominating or otherwise causing someone to serve on Ruger’s board unless that person is independent of Beretta.
That distinction means the proposed order doesn’t completely prohibit Beretta from nominating someone to Ruger’s board. Instead, it is designed to prevent Beretta-affiliated directors from creating the competitive overlap that prompted the FTC’s concerns.
Beretta Would Face Additional Restrictions
The proposed order contains safeguards beyond the independence requirement.
Beretta would have to provide the FTC with at least 15 days of advance written notice before appointing, designating, nominating, electing or otherwise causing someone to become a Ruger board member.
Beretta also couldn’t hire or enter into certain financial or other relationships with an independent director it nominated while that person serves on Ruger’s board and for one year afterward when such a relationship would involve violating the director’s fiduciary duty or exchanging Ruger’s nonpublic information with Beretta.
According to the FTC’s analysis of the proposed agreement, Beretta would also be required to distribute the order to appropriate board members, officers and directors and maintain an antitrust compliance program.
The restrictions are intended to keep the companies operating as independent competitors even as Beretta increases its ownership stake in Ruger.
Why the FTC Says the Arrangement Matters
The FTC describes Beretta and Ruger as two of the largest firearm manufacturers and says competition between the companies should occur without opportunities to coordinate through overlapping board relationships.
In announcing the action, the agency specifically pointed to the possibility that interlocking directors could facilitate the exchange of competitively sensitive information.
The Commission’s complaint is an allegation rather than a final finding that the companies violated the law. The FTC notes that it issues an administrative complaint when it has “reason to believe” a law has been or is being violated and determines that a proceeding is in the public interest.
The proposed consent order is intended to resolve the agency’s competition concerns without preventing Beretta’s proposed investment in Ruger.
The Agreement Is Now Open for Public Comment
The FTC voted 2-0 to issue its complaint and accept the consent agreement for public comment.
The public has 30 days to comment on the proposed agreement. Filing instructions are available through the FTC’s Beretta/Ruger case docket, and comments will be posted publicly after they are processed.
After the public-comment period, the Commission can decide whether to make the proposed order final. A final FTC consent order carries the force of law regarding the companies’ future conduct covered by the order.
For consumers, the case is ultimately about preserving competition between two major manufacturers rather than stopping Beretta from investing in Ruger altogether. The proposed settlement would allow the investment arrangement to move forward while placing restrictions on board relationships that the FTC alleges could otherwise create opportunities for coordination between competitors.
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