The Department of Justice (DOJ) recently filed a civil antitrust lawsuit against two ValueAct funds and their general partner (collectively, ValueAct), alleging violations of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the HSR Act).1 The DOJ’s complaint alleges that the ValueAct funds failed to comply with the HSR premerger notification requirements when they purchased significant shares of Halliburton Company (Halliburton) and Baker Hughes Incorporated (Baker Hughes) in 2014 and 2015.2 Although ValueAct purchased small stakes in each company (approximately 5.3% in Baker Hughes and 1.9% in Halliburton), the DOJ alleges that it inappropriately relied on the “investment-only” HSR exemption because it “intended to influence the business decisions of both companies.”3 The DOJ brought a separate action seeking to enjoin the proposed merger of Halliburton and Baker Hughes, two days after its lawsuit against ValueAct.

The DOJ’s lawsuit seeks civil penalties of at least $19 million and to enjoin ValueAct from future violations of the HSR Act.4 To date, ValueAct has not reached a settlement with the DOJ and has publicly stated that it plans to contest the lawsuit.5 If fully litigated, the lawsuit could provide greater clarity regarding the scope of the HSR Act’s “investment-only” exemption and how it applies to certain shareholder activities. Regardless of the outcome, the DOJ’s lawsuit against ValueAct provides an important reminder that investors should avoid actions that are inconsistent with a declared “investment-only” intent if they plan to rely upon the “solely for purposes of investment” HSR exemption.


The HSR Act and the Investment-Only Exemption

Absent an exemption, the HSR Act requires that parties file pre-merger notification forms with the DOJ and the Federal Trade Commission (FTC) for certain acquisitions of voting securities valued above $78.2 million.6 When an acquirer unilaterally purchases sufficient voting securities on the open market or through a third party—as opposed to a negotiated agreement with the issuer—the acquirer must also notify the issuer in writing of the pending purchase, and the issuer must make an HSR filing.7 Parties who fail to comply with the HSR notification requirements can be fined up to $16,000 per day for the duration of non-compliance with the Act.8

The HSR Act, however, exempts certain acquisitions of voting securities if (a) as a result of the acquisition, the acquiring person will hold 10 percent or less of the issuing company’s outstanding voting securities and (b) the acquisitions are made “solely for the purpose of investment” with no intent to engage in business decisions.9 This exemption is narrow and applies only to passive investors that do not intend to participate in the management of the issuer’s business, including by influencing business decisions, nominating a candidate for the board of directors, holding a seat on the board, or soliciting a proxy.10 To date, no court has considered the scope and application of the “investment-only” exemption.

Recent HSR Enforcement Actions

In August 2015, the DOJ brought a similar lawsuit against Third Point, LLC for failing to report its acquisitions of shares of Yahoo! Inc.11 The DOJ alleged that Third Point inappropriately relied on the “investment-only” HSR exemption because its actions were inconsistent with an investment-only intent. These actions included taking steps to influence the process of selecting candidates for the board, discussing proxy voting, and assembling a slate for the Yahoo! Board.12 The DOJ sought injunctive relief only and did not seek civil penalties because it was Third Point’s first HSR violation, and the company was out of compliance for only a short period of time, as it quickly filed the appropriate pre-merger notification forms upon learning of its violation.13 In contrast, the DOJ stated that it is seeking civil penalties against ValueAct due to the “seriousness of the violation and ValueAct’s prior HSR violations.”14

The DOJ’s Complaint Against ValueAct

During its antitrust review of the proposed merger between Baker Hughes and Halliburton, the DOJ discovered that, shortly after the merger was announced, ValueAct had made multiple acquisitions of Halliburton and Baker Hughes voting securities between November 28, 2014 and June 30, 2015 that exceeded the applicable HSR notification thresholds at the time of the acquisitions.15 According to the complaint, ValueAct did not file the appropriate HSR premerger notification form for its respective acquisitions on the grounds that it qualified for the “investment-only” exemption.16

ValueAct is an investment hedge fund that seeks an active, constructive involvement in the management of the companies in which it invests. ValueAct’s business model focuses on “acquiring significant ownership stakes in a limited number of companies,” and “[t]he goal in each investment is to work constructively with management and/or the company’s board to implement a strategy or strategies that maximize returns for all shareholders.”17 The DOJ pointed to this activist language in support for its allegations that ValueAct’s purchases were inconsistent with the investment-only exemption.

The complaint also cites ValueAct’s internal documents and notes of meetings between ValueAct and executives at Baker Hughes and Halliburton that, according to the DOJ, demonstrate that ValueAct intended to help restructure the merger and actively engage in business decisions of the companies. For example, the DOJ points to internal documents indicating that ValueAct “would likely seek to take a more active role in overseeing the company,” would work to “increase [the] probability of [the] deal happening,” and was “a strong advocate for the deal to close."18 Further, according to the complaint, ValueAct had numerous meetings and teleconferences with senior management, including the CEOs of both Halliburton and Baker Hughes, where it obtained access to sensitive business information and actively engaged in post-merger integration plans.19


The DOJ and FTC have pursued an active enforcement agenda in recent years against individual investors and funds that violate the HSR reporting requirements. In particular, the agencies have taken a narrow view of the “investment-only” exemption in a number of enforcement actions.20

These actions demonstrate that even if investors acquire only a small amount of voting securities, the antitrust agencies will focus on the investor’s intent and seek an enforcement action if they find that the investor intends to influence the business decisions of the issuing company. Indeed, the antitrust agencies show no signs of abatement of challenging mere expressions of intent by investors seeking to rely on the “investment-only” exemption. Investors, therefore, should take care when discussing their true investment intent, particularly with respect to documents such as marketing materials, advertisements, and internal emails and avoid discussing their activist approach or their intent to participate in the business decisions of the companies in which they invest.

Moreover, the DOJ’s action against ValueAct may provide clarity regarding the scope and application of the “investment-only” exemption. To date, the exemption has never been interpreted by the courts, forcing investors to rely on previous DOJ settlements and agency speeches. As noted, ValueAct has stated that it does not intend to settle with the DOJ and plans to contest the lawsuit in court. If the case is fully litigated, it may have significant implications on how the “investment-only” exemption will be interpreted in the future and the extent to which activist investors may be allowed to influence management and operations of the companies in which they invest. For now, however, the DOJ’s lawsuit highlights the relatively high bar for claiming the “investment-only” exemption, particularly for activist investors, and provides further guidance regarding the types of actions and statements that the agencies claim evince more than a passive investment intent.