On Dec. 19, 2007, the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) announced that ValueAct Capital Partners L.P., a San Francisco-based investment fund, would pay $1.1 million to settle charges that it failed to comply with the premerger reporting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”).
The HSR Act requires certain acquirers of stock or assets to notify the federal antitrust agencies that the acquisition is to take place, and to observe a waiting period before completing the acquisition. Notification and the waiting period provide federal antitrust agencies with the opportunity to investigate the acquisition. A violation of the reporting requirements or the waiting period can result in a civil penalty of up to $11,000 per day that the party is in violation of the HSR Act.
The filing requirements are triggered when an acquisition exceeds a particular monetary threshold (the size-of-transaction test), currently $59.8 million, and certain other conditions are satisfied. The size-oftransaction threshold is adjusted annually, typically in February. In order to determine whether a transaction crosses the threshold, the acquiring party must compute the value of the voting securities and assets held as the result of the current acquisition. The phrase “held as a result of the acquisition” has a technical meaning under the HSR Act and its implementing regulations. It includes not only those securities and assets currently being acquired, but also voting securities and, in some circumstances, assets previously acquired from the same person. In addition, there is an exemption for acquisitions made solely for investment purposes, if the acquiring party does not subsequently hold more than 10 percent of the outstanding voting securities.
ValueAct was charged for failing to file premerger notifications in three instances where it invested in publicly traded companies. On Feb. 7, 2005, ValueAct acquired voting securities of Gartner Inc., increasing the value of its Gartner stock holdings to approximately $248 million. On April 28, 2005, ValueAct acquired Catalina Marketing Corporation stock, making it the owner of more than 10 percent of Catalina voting securities worth approximately $148 million. Also on April 28, 2005, ValueAct acquired Acxiom Corporation voting securities—a transaction that resulted in ValueAct owning more than 10 percent of Acxiom stock and that raised the value of its holdings to approximately $178 million. In each instance, the stock acquisition, when combined with ValueAct’s prior holdings, exceeded the premerger notification filing threshold. ValueAct did not make the necessary HSR Act filings in any of the three acquisitions.
Importantly, ValueAct had previously violated the HSR Act in 2003. ValueAct incurred no penalty for these initial violations, but as part of its remedial notifications laid out a plan to comply with the HSR Act in the future. FTC staff took no action against ValueAct in 2003 because the firm assured the FTC that it would implement appropriate HSR monitoring procedures. As evidenced by the three violations above, ValueAct clearly failed to do so, and the agencies imposed a $1.1 million penalty as a result.
This case underscores the importance of consulting antitrust counsel when making an acquisition of voting securities or assets. Reed Smith’s antitrust practice is well-equipped to help navigate the complexities of the HSR Act requirements.