On July 12, 2016, the United States Department of Justice Antitrust Division (“DOJ”) announced the settlement of charges it brought against ValueAct Capital for alleged violations of the reporting and waiting period of the Hart-Scott-Rodino Act, 15 U.S.C. § 18a (the “HSR Act”). To settle DOJ’s charges, ValueAct was required to pay a record $11 million in civil penalties, and agreed to injunctive relief designed to prevent future violations.
The settlement arose out of ValueAct’s purchases of Baker Hughes and Halliburton shares after the two providers of oilfield products and services announced their plan to merge in a deal valued at $35 billion. According to DOJ’s complaint, ValueAct purchased more than $2.5 billion of Halliburton and Baker Hughes voting shares without complying with the notification requirements of the HSR Act, which would have obligated the firm to report to DOJ and the Federal Trade Commission about its investment plans and comply with the HSR Act’s waiting period before making the investments.
The HSR Act has a narrow exemption to the reporting and waiting period requirement for acquisitions of less than 10 percent of a company’s outstanding voting securities if the acquisition is made “solely for the purposes of investment.” 18 U.S.C. § 18a(c)(9). According to DOJ, however, ValueAct could not avail itself of this “investment-only” exemption because it purchased the shares with the intent to influence the companies’ decisions. See DOJ Complaint ¶ 4. The complaint detailed how ValueAct used its access to senior executives of both Halliburton and Baker Hughes to attempt to influence the companies’ proposed merger and other aspects of their businesses. Id. at ¶¶ 3, 5. Renata Hesse, head of the Antitrust Division, stated: “ValueAct was not entitled to avoid the HSR requirements by claiming to be a passive investor, while at the same time injecting itself in this manner.”
In addition to the penalty, ValueAct is also enjoined from relying on the “investment-only” exemption when it intends to influence, or is considering influencing, certain basic business decisions, including those relating to merger and acquisition strategy, corporate restructuring, and the company’s pricing, production capacity, or production output. Hesse added that the record penalty and injunctive demonstrate DOJ’s “continued commitment to vigorous enforcement of these important notification and waiting period requirements.”
The ValueAct settlement serves as a stark reminder of DOJ’s narrow interpretation of the “investment-only” exemption. Entities considering an investment in other entities should consult counsel to ensure that any potential investments are within the bounds of acceptable premerger activities.