Almost 40 years ago, Congress passed the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). The HSR Act provided a mechanism pursuant to which partied to an acquisition of assets or voting securities would be required, if certain thresholds were met, to file a notification form with the antitrust enforcement agencies — the Federal Trade Commission (the FTC”) and the Department of Justice, Antitrust Division (the DOJ) — and observe a waiting period before they consummated the transaction. The HSR Act empowered the FTC to promulgate rules and regulations governing the circumstances under which the parties would be required to submit an HSR Act filing.
The HSR Act rules and regulations are extensive and extremely complex; therefore, it is prudent for investors — both companies and individual — to have compliance procedures in place to ensure compliance with the HSR Act. Every so often, the FTC reminds us of this fact when it brings an enforcement action to penalize those who do not abide by their rules and regulations. That happened last week with an action, and consent decree, filed against Berkshire Hathaway.
In December 2013, Berkshire-Hathaway converted notes it held in USG Corporation into 21.4 million voting shares of the company. Following the conversion, the value of its aggregate holdings in USG exceeded $283.6 million, one of the thresholds for filing notification at the time. Under Rule 801.13, when determining the value of voting securities to be held “as a result of a transaction,” the voting securities to be acquired must be aggregated with the voting securities already held by the entity acquiring the securities. Berkshire Hathaway failed to take into account the securities it already held when it initially assessed its filing obligations under the HSR Act. Berkshire Hathaway recognized its mistake and made a corrective filing in January 2014.
The government likely would have shown the firm some leniency had it not been for the fact that this was the firm’s second corrective filing in six months: Berkshire Hathaway had failed to comply with the same notification requirement when it acquired Symetra Financial Corporation voting securities in June 2013. Indeed, the FTC and DOJ had declined to take action against Berkshire Hathaway following its first HSR Act violation, in part, because the firm assured the FTC that it would implement appropriate monitoring procedures to prevent future HSR Act violations. As a result of the second violation, however, the FTC and DOJ filed a complaint against Berkshire Hathaway on Wednesday, which the parties settled on the same day. Berkshire Hathaway has agreed to pay the maximum civil penalty allowable for such a violation — $16,000 per day — for a grand total of $896,000.
Though not all acquisitions of voting securities require an HSR Act filing, determining whether a contemplated acquisition will require a filing is not as simple as looking at the value of the acquisition, as demonstrated above. Seeking the advice of experienced HSR counsel to help determine whether a contemplated transaction triggers a notification requirement is a wise investment (if we do say so ourselves). Although, under certain circumstances, the FTC and DOJ may decline to action against a first time offender, no one is entitled to a mulligan, and at $16,000 per day, failure to make a required HSR filing can be a costly mistake.