On Monday, April 4, 2016, the U.S. Department of Justice (“DOJ”) filed a complaint against three ValueAct Capital-related entities (collectively, “ValueAct”), asserting that they violated the reporting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) when they acquired voting securities, collectively valued at more than $2.5 billion, in both Baker Hughes and Halliburton. All three ValueAct entities allegedly made acquisitions that exceeded the filing threshold, and so the issue as framed in the complaint is solely whether the “investment only” exemption from the HSR Act—which applies if the purchaser’s holdings constitute less than ten percent of the stock of the company and the acquisition is “solely for the purpose of investment”—applies. The DOJ alleges that the exemption did not apply in view of, among other things, ValueAct’s alleged efforts to influence the business decisions of both companies in connection with their proposed merger, which the DOJ sued to block yesterday. The action illustrates continued focus on the reporting requirements of “activist investors,” which were the subject of a similar enforcement action last summer.


According to the DOJ’s complaint, ValueAct began acquiring significant holdings of Baker Hughes and Halliburton shortly after their proposed merger was announced in November 2014. The complaint asserts that ValueAct made the investment anticipating that it would influence the business decisions of both companies, and told ValueAct’s potential investors that it would “be a strong advocate for the deal to close.” In keeping with that assertion, the DOJ contends that ValueAct met frequently with senior management of both companies, including the CEOs, from the time it started acquiring their stock, and that ValueAct intended to help restructure the transaction if it encountered antitrust roadblocks.

The complaint notes that, in January 2015, ValueAct disclosed its substantial stake in Baker Hughes by filing a Schedule 13D with the Securities and Exchange Commission stating that it might “propos[e] changes in [Baker Hughes’s] operations.” The complaint also details a variety of communications between ValueAct and the two companies, culminating in a 55-page presentation that ValueAct made to Baker Hughes’s CEO proposing operational and strategic changes to the company.

The complaint alleges that ValueAct made corrective filings in 2003 respecting three prior acquisitions (which did not result in a fine) and corrective filings in 2005 respecting three prior acquisitions (which resulted in a $1.1 million civil penalty). The DOJ’s press release announced that “given the seriousness of the violations and ValueAct’s prior HSR violations, we will be seeking significant civil penalties and an injunction against further violations.”


Certain of ValueAct’s alleged activities appear to be of a type that traditionally has been viewed as consistent with the investment-only exemption, such as “being a strong advocate for the deal to close.” Others, such as alleged frequent meetings with the senior executives of both companies and ValueAct’s alleged plan to influence merger-related business decisions of both Baker Hughes and Halliburton, are potentially more problematic—particularly given that ValueAct previously paid more than $1 million to settle a prior enforcement action based on alleged HSR violations.

The DOJ complaint’s recitation of ValueAct presentations noting that ValueAct likes investing in “disciplined oligopolies” in industries characterized by “high barriers-to-entry” is a useful reminder that government enforcers may seek to discover investor views on proposed mergers. In other words, documents created by activist investors have the potential to become evidence in DOJ challenges to mergers involving the companies in which the activists invest. The DOJ brought a separate action challenging the proposed merger of Baker Hughes and Halliburton on April 6, 2016, two days after its action against ValueAct.