On 10 August 2016, the Federal Trade Comission (FTC) announced that Caledonia Investments plc (Caledonia), a UK public limited company, agreed to pay a fine of US$480,000 to settle charges that it violated the premerger notification and waiting period requirements of the Hart-Scott-Rodino (HSR) Act of 1976 when it acquired voting securities of Bristow Group, Inc. (Bristow) in February 2014 through the vesting of restricted stock units.
Under the HSR Act, the acquisition of voting shares of an issuer is subject to pre-closing filing and waiting period requirements if the HSR threshold tests would be satisfied as a result and if no exemption would apply. The maximum civil penalty for an HSR violation increased from US$16,000 per day to US$40,000 per day effective 1 August 2016. The new maximum civil penalty for HSR violations applies to any civil penalties assessed after 1 August 2016, including penalties based on earlier violations.
According to the complaint in United States v. Caledonia Investments plc (the Complaint), Caledonia had made an HSR filing on 5 June 2008, to report its acquisition of voting shares of Bristow valued in excess of the US$50 million threshold test (as adjusted). Under 16 C.F.R. Section 802.21, an exemption was available to Caledonia for subsequent acquisitions of Bristow voting shares if (i) Caledonia did in fact cross the US$50 million (as adjusted) threshold within a year from the expiration or termination of its 2008 HSR filing waiting period, (ii) the subsequent acquisitions of Bristow voting shares occurred within five years of the expiration or termination of the waiting period applicable to its 2008 HSR filing, and (iii) the subsequent acquisitions would not result in Caledonia crossing a higher HSR notification threshold.
On 3 February 2014, Caledonia acquired additional shares of Bristow through the vesting of restricted stock units. Because this acquisition occurred more than five years after the expiration or termination of Caledonia’s 2008 HSR filing waiting period, it was not exempt under Section 802.21 and, according to the Complaint, Caledonia had an obligation to report this acquisition under the HSR Act. Caledonia did not actually file an HSR form to report this acquisition, however, until 4 February 2015, more than one year later. The HSR waiting period expired on 5 March 2015. Therefore, according to the Complaint, Caledonia was in violation of the HSR Act from 3 February 2014, through 6 March 2015.
The FTC has a “one bite at the apple” policy and typically does not impose fines on parties who inadvertently miss an HSR filing obligation if, among other things, such parties self-report the violation upon discovery and make a corrective HSR filing soon thereafter. Although Caledonia claimed its violation was inadvertent and made a corrective HSR filing, the FTC still sought a fine in this case because Caledonia had missed an HSR filing obligation in the past. Specifically, Caledonia did not file an HSR form when it acquired voting shares of Offshore Logistics, Inc. (Bristow’s previous name) in excess of the applicable HSR threshold amounts on 19 December 1996. At that time, Caledonia did not qualify for the “solely for the purpose of investment” exemption because it named two of its employees to the board of Offshore Logistics, Inc. Caledonia made a corrective HSR filing to report this acquisition on 3 June 1997, explaining that the missed filing obligation was inadvertent. No fines were imposed against Caledonia at that time.
Significantly, the Competitive Impact Statement explained that the Government did not seek the maximum fines permitted under the HSR Act in this case “because the violation was inadvertent, the Defendant promptly self-reported the violation after discovery, and the Defendant is willing to resolve the matter by consent decree and avoid prolonged investigation and litigation.”
There are several key takeaways from this enforcement action.
|–||U.S. and foreign entities should consider HSR filing issues in advance of acquiring any voting shares, assets, or non-corporate interests through any means, including the vesting of restricted stock units.|
|–||Application of the HSR exemptions can be complex and experienced HSR counsel should be consulted before reliance on any exemption.|
|–||All entities who acquire assets, voting shares, or non-corporate interests—including those entities who have inadvertently missed an HSR filing obligation and filed a corrective HSR filing in the past (no matter how many years ago)—should establish and follow comprehensive HSR compliance procedures.|
As with other recent HSR enforcement actions, this enforcement action underscores the importance of consulting in advance with experienced HSR counsel in connection with acquisitions of voting shares, assets, or non-corporate interests, regardless of whether the parties are U.S. entities and regardless of how the acquisition is structured.