Antitrust Law Daily ‘Activist investor’ settles U.S. charges over unreported purchases of Halliburton, Baker Hughes shares
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Tuesday, July 12, 2016

‘Activist investor’ settles U.S. charges over unreported purchases of Halliburton, Baker Hughes shares

By Jeffrey May, J.D.

To settle Department of Justice allegations that unreported acquisitions of over $2.5 billion of voting securities of Halliburton Company and Baker Hughes Inc. during their now-abandoned merger effort violated the reporting and waiting period requirements of the Hart-Scott-Rodino (HSR) Act, investment firm ValueAct has agreed to pay a record $11 million in civil penalties and to be bound by injunctive relief designed to prevent future violations (U.S. v. VA Partners I, LLC, Case No. 3:16-cv-01672).

In April, the Department of Justice Antitrust Division filed a complaint in the federal district court in San Francisco against VA Partners I, LLC, ValueAct Capital Master Fund, L.P., and ValueAct Co-Investment International, L.P. The government alleged that two ValueAct investment funds acquired significant holdings of Halliburton and Baker Hughes—two of the world's largest providers of oilfield products and services in the world—after the companies announced in 2014 their intent to merge. That merger was ultimately abandoned in the face of a Justice Department challenge.

According to the government, ValueAct’s acquisitions of holdings of Halliburton and Baker Hughes were reportable under the HSR Act. The HSR Act's notification and waiting period provides the Justice Department and the FTC with an opportunity to conduct an antitrust review of proposed transactions before they are consummated.

Although there is a limited "investment-only" exemption to the HSR report-and-wait rules for passive investors acquiring less than 10 percent of a company’s outstanding voting securities, the exemption did not apply in this case, in the government’s view. ValueAct became one of the largest shareholders of both Halliburton and Baker Hughes, and ValueAct’s most senior executives planned from the outset to play an active role at Halliburton and Baker Hughes. They allegedly intended to influence the business decisions of the companies to promote the merger.

The government's complaint asked the court for civil penalties of at least $19 million. An injunction against further HSR Act violations also was among the remedies sought.

Under the proposed final judgment, which requires court approval, ValueAct has agreed to pay $11 million in civil penalties and to refrain from engaging in HSR Act violations in the future.

Civil penalties. The HSR Act currently provides a maximum civil penalty of $16,000 for each day that a defendant is in violation of the Act. Although the Justice Department had sought larger civil penalties in its complaint against ValueAct, the government agreed to adjust the penalty downward from the maximum because the defendants were willing to resolve the matter by consent decree and avoid prolonged litigation, according to the Justice Department’s competitive impact statement.

Despite the adjustment, this is the largest penalty ever imposed for a violation of the HSR Act, the Justice Department announced. Until now, the largest civil penalty in an HSR Act case had been imposed in an action against Gemstar-TV Guide International, Inc. In that matter, the government alleged that Gemstar and TV Guide had engaged in "gun jumping" or premerger coordination prior to their merger in July 2000. The consent decree included $5.67 million in civil penalties. At that time, the maximum civil penalty was $11,000 per day.

Civil penalties in HSR Act cases are generally in the hundreds of thousands rather than millions of dollars. However, with the maximum per day civil penalty for HSR Act violations set to increase to $40,000 in August, purported offenders could be facing larger payouts in government settlements.

Injunctive relief. The settlement also includes injunctive relief intended to prevent future violations. Consequently, if ValueAct violates the settlement, then the company could face additional sanctions for contempt. The settlement would require the defendants to maintain a compliance program. In addition, the defendants must make employees available for interviews and file compliance reports at the Justice Department's request.

Attorneys: Kathleen S. O’Neill for U.S. Department of Justice. Andrew Z. Michaelson (Boies, Schiller & Flexner LLP) for VA Partners I, LLC.

Companies: VA Partners I, LLC; ValueAct Capital Master Fund, L.P.; ValueAct Co-Investment International, L.P. Halliburton Co.; Baker Hughes Inc.

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