For the second time in as many weeks, the Federal Trade Commission (FTC) announced the filing of a civil complaint for violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended (the “HSR Act”). On 2 July 2013, the Department of Justice (DOJ) filed a complaint on behalf of the FTC in federal district court alleging that Barry Diller acquired shares of Coca Cola without proper notification under the HSR Act. Parties, including individual investors, must notify the FTC and DOJ and observe a waiting period before acquiring voting securities, assets, or controlling interests in partnerships or limited liability companies if HSR threshold tests would be satisfied and no exemption would apply. Diller agreed to pay civil penalties of US$480,000 to settle the charges.
The complaint in United States v. Barry Diller alleges that Diller acquired 120,000 shares of Coca Cola on 1 November 2010, and as a result, he held voting securities valued in excess of the then-existing reporting threshold of US$63.4 million. Although this acquisition satisfied the applicable HSR threshold tests and no exemption applied, Diller did not file a notification under the HSR Act. Between 1 November 2010 and 26 April 2012, Diller continued to acquire shares of Coca Cola without filing any notification with the FTC or DOJ. On 27 April 2012, Diller acquired additional shares valued at approximately US$20.3 million. Diller again failed to make an HSR filing even though, as a result of this acquisition, he held voting securities valued in excess of the next higher notification threshold under the HSR Act, which at the time was US$136.4 million. Diller did not qualify for the “solely for the purpose of investment” exemption because he was a Director of Coke. Diller made corrective filings after he received an inquiry from in-house counsel at Coca Cola regarding the application of the HSR Act to the 27 April 2012 acquisition.
Those who violate the HSR Act are subject to civil penalties of up to US$16,000 per each day in violation of the statute. It is important to note that the FTC and DOJ may seek civil penalties for violations of the HSR Act’s reporting requirements even in the case of an inadvertent missed filing. In Diller’s case, a prior violation of the HSR Act likely contributed to the FTC’s decision to recommend seeking civil penalties. In 1998, Diller had made a corrective HSR filing after his failure to file a notification related to his acquisition of voting securities of CitySearch, Inc. At that time he presumably agreed to institute a compliance program so as not to miss any future HSR filing obligations. Even though Diller self-reported his 2010-2012 violations, the FTC still recommended a complaint, although it agreed to a lower civil penalty than the statute permits.
The complaint against Diller serves as another reminder of the importance of consulting with HSR counsel before the acquisition of voting securities, assets, or controlling interests in partnerships or limited liability companies. This case comes less than two weeks after the filing of a complaint against MacAndrews & Forbes Holdings Inc. for failure to file notification under the HSR Act. Even acquisitions of minority interests, or a series of small acquisitions that do not by themselves surpass the HSR thresholds, may trigger mandatory filings due to the complicated valuation and aggregation rules under the HSR regulations.
In a separate announcement, the FTC finalized amendments to the premerger notification rules that formalize longstanding practices related to the withdrawal of HSR filings. The FTC’s Premerger Notification Office has long permitted the acquiring person to withdraw and re-file its premerger notification without incurring additional filing fees (so long as it re-filed within two business days of the withdrawal). Parties often employ this informal procedure in order to provide agency staff additional time to review a transaction in the hopes of avoiding a protracted second request investigation. The new rules finalized on 28 June 2013 do not change this procedure, although they provide added certainty in that the informal practice is now part of the FTC’s rules.
In addition, the new rules require automatic withdrawal of HSR filings if the HSR waiting period is still pending and “any filing that publicly announces the expiration, termination or withdrawal of a tender offer or the termination of an agreement or letter of intent is made” by either the acquiring or acquired person to the Securities and Exchange Commission. This change was not without some controversy. In fact, the Commission vote approving the proposed change was 3-1. The majority believes this procedure will prevent the FTC from “expend[ing ] scarce resources on hypothetical transactions,” but Commissioner Wright, on the other hand, dissented and argued that the rule is an unnecessary regulation addressing an unproven problem. Nevertheless, the rule is now final and a part of the HSR regulations.