U.S. sues activist investment firm over Halliburton, Baker Hughes stakes

U.S. sues activist investment firm over Halliburton, Baker Hughes stakes

The Department of Justice (DOJ) has filed a civil antitrust lawsuit in the U.S. District Court for the Northern District of California against certain ValueAct Capital entities for violating the reporting and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act). The Antitrust Division’s lawsuit seeks civil penalties and an injunction against further HSR Act violations.

On Nov. 17, 2014, Baker Hughes and Halliburton announced their plan to merge in a deal valued at $35 billion. Thereafter, ValueAct, an activist investment firm, purchased over $2.5 billion of Halliburton and Baker Hughes voting shares without complying with the HSR Act’s notification requirements, the DOJ said in a statement.

According to the complaint, ValueAct purchased these shares with the intent to influence the companies’ business decisions as the merger unfolded and therefore could not rely on the limited “investment-only” exemption to HSR notification requirements. The complaint details how ValueAct used its access to senior executives of both Halliburton and Baker Hughes to formulate merger and other business strategies with the companies.

“ValueAct’s substantial stock purchases made it one of the largest shareholders of two competitors in the midst of our antitrust review of the companies’ proposed merger, and ValueAct used its position to influence decision-making at both companies,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division. “ValueAct was not entitled to avoid HSR requirements by claiming to be a passive investor. Given the seriousness of the violation and ValueAct’s prior HSR violations, we will be seeking significant civil penalties and an injunction against further violations.”

The HSR Act imposes notification and waiting period requirements for transactions meeting certain size thresholds so that such transactions can undergo premerger antitrust review by the department and the Federal Trade Commission. The HSR Act has a narrow exemption for acquisitions of less than 10% of a company’s outstanding voting securities if that acquisition is made “solely for the purposes of investment” with no intention of participating in the company’s business decisions.

Federal courts can assess civil penalties for premerger notification violations under the HSR Act in lawsuits brought by the department. The maximum civil penalty for an HSR violation is $16,000 per day.

ValueAct is an investment firm headquartered in San Francisco that advertises a strategy of “active, constructive involvement” in the management of the companies in which it invests.  According to ValueAct’s website, ValueAct’s business model focuses on “acquiring significant ownership stakes in a limited number of companies,” and “the goal in each investment is to work constructively with management and/or the company’s board to implement a strategy or strategies that maximize returns for all shareholders.”

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