On August 10 2016 the Federal Trade Commission (FTC) announced that Caledonia Investments plc, a UK public limited company, has agreed to pay a $480,000 fine to settle charges that it had violated the Hart-Scott-Rodino Act 1976 pre-merger notification and waiting period requirements when it acquired Bristow Group, Inc voting securities in February 2014 through the vesting of restricted stock units.
Under the Hart-Scott-Rodino Act, the acquisition of an issuer's voting shares is subject to pre-closing filing and waiting period requirements if:
- the act's threshold tests will be satisfied as a result; and
- no exemption applies.
On August 1 2016 the maximum civil penalty for a Hart-Scott-Rodino Act violation increased from $16,000 to $40,000 per day. The new maximum civil penalty applies to any civil penalties assessed after August 1 2016, including penalties based on earlier violations.
According to the complaint in United States v Caledonia Investments plc, Caledonia had made a Hart-Scott-Rodino filing on June 5 2008 to report its acquisition of Bristow voting shares which were valued in excess of the $50 million threshold test (as adjusted). Under Section 802.21 of Federal Regulation 16, an exemption had been available to Caledonia for subsequent acquisitions of Bristow voting shares if:
- it crossed the $50 million threshold (as adjusted) within one year from the expiration or termination of its 2008 Hart-Scott-Rodino filing waiting period;
- the subsequent acquisitions of Bristow voting shares occurred within five years from the expiration or termination of the waiting period applicable to its 2008 Hart-Scott-Rodino filing; and
- the subsequent acquisitions did not result in Caledonia crossing a higher Hart-Scott-Rodino notification threshold.
On February 3 2014 Caledonia acquired additional Bristow shares through the vesting of restricted stock units. Because this occurred more than five years after the expiration or termination of Caledonia's 2008 Hart-Scott-Rodino filing waiting period, it was not exempt under Section 802.21 and – according to the complaint – had to report the acquisition under the act. However, Caledonia did not file a Hart-Scott-Rodino form to report this acquisition until February 4 2015 – more than one year later. The Hart-Scott-Rodino waiting period expired on March 5 2015. Therefore, according to the complaint, Caledonia had violated the Hart-Scott-Rodino Act from February 3 2014 to March 6 2015.
The FTC has a 'one-bite-at-the-apple' policy and typically does not impose fines on parties that inadvertently miss a Hart-Scott-Rodino filing obligation if, among other things, such parties self-report the violation on discovery and make a corrective filing soon after. Although Caledonia had claimed that its violation was inadvertent and made a corrective filing, the FTC still sought a fine in this case because Caledonia had missed a filing obligation in the past. Specifically, Caledonia had not filed a Hart-Scott-Rodino form when it acquired voting shares of Offshore Logistics, Inc (Bristow's previous name) in excess of the applicable Hart-Scott-Rodino threshold amounts on December 19 1996. At that time, Caledonia had not qualified for the 'solely for the purpose of investment' exemption, as it had elected two of its employees to the Offshore Logistics board. Caledonia had made a corrective Hart-Scott-Rodino filing to report this acquisition on June 3 1997, explaining that the missed filing obligation was inadvertent, and no fines had been imposed against it at that time.
Significantly, the competitive impact statement explained that the government had not sought the maximum fines permitted under the Hart-Scott-Rodino Act in this case "because the violation was inadvertent, the Defendant promptly self-reported the violation after discovery, and the Defendant [was] willing to resolve the matter by consent decree and avoid prolonged investigation and litigation".
There are several key takeaways from this enforcement action:
- US and foreign entities should consider Hart-Scott-Rodino 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 Hart-Scott-Rodino exemptions can be complex and experienced counsel should be consulted before reliance on any exemption.
- All entities that acquire assets, voting shares or non-corporate interests – including those that have inadvertently missed a Hart-Scott-Rodino filing obligation and filed a corrective filing in the past (no matter how long ago) – should establish and follow comprehensive Hart-Scott-Rodino compliance procedures.
As with other recent Hart-Scott-Rodino enforcement actions, this action underscores the importance of consulting in advance with experienced counsel in connection with acquisitions of voting shares, assets or non-corporate interests, regardless of whether the parties are US entities and how the acquisition is structured.
For further information on this topic please contact Michele S Harrington at Hogan Lovells US LLP's McLean office by telephone (+1 703 610 6100) or email ([email protected]). Alternatively, contact Robert Baldwin or Olivia J Jahn at Hogan Lovells US LLP's Washington DC office by telephone (+1 202 637 5600) or email ([email protected] or [email protected]). The Hogan Lovells website can be accessed at www.hoganlovells.com.