The US Department of Justice has filed a civil suit against ValueAct Capital, a $19 billion hedge fund led by Jeff Ubben, accusing it of violating premerger notification requirements.
The DOJ said ValueAct purchased about $2.5 billion in voting shares in Halliburton and Baker Hughes after the oil companies announced a $35 billion deal.
The government said this was a premerger notification violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
“ValueAct’s substantial stock purchases made it one of the largest shareholders of two competitors in the midst of our antitrust review of the companies’ proposed merger, and ValueAct used its position to influence decision-making at both companies,” Assistant Attorney General Bill Baer said in a statement.
Baer continued: “ValueAct was not entitled to avoid HSR requirements by claiming to be a passive investor. Given the seriousness of the violation and ValueAct’s prior HSR violations, we will be seeking significant civil penalties and an injunction against further violations.”
ValueAct said it disagreed with the DOJ:
“ValueAct Capital is a long-term value investor. We take our obligations to comply with the law, including the HSR Act, extremely seriously. We have acted entirely properly and in compliance with the law. We fundamentally disagree with the Department of Justice’s allegations in this case.
“ValueAct strongly believes in the most basic principles of shareholder rights. This includes having a relationship with company management, conducting due diligence on investments, and engaging in ordinary course communications with other shareholders. As a result, we see no alternative but to contest the Department of Justice’s action and will vigorously defend our position.”
Here’s the DOJ’s full release:
ValueAct Invested Over $2.5 Billion in Halliburton and Baker Hughes, Failed to Notify Antitrust Authorities, Wrongly Claiming No Intent to Influence Companies’ Business Decisions
The Department of Justice today filed a civil antitrust lawsuit in the U.S. District Court for the Northern District of California against certain ValueAct Capital entities for violating the reporting and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). The Antitrust Division’s lawsuit seeks civil penalties and an injunction against further HSR Act violations.
On Nov. 17, 2014, Baker Hughes and Halliburton – two of the three largest providers of oilfield products and services in the world – announced their plan to merge in a deal valued at $35 billion. Thereafter, ValueAct, an activist investment firm, purchased over $2.5 billion of Halliburton and Baker Hughes voting shares without complying with the HSR Act’s notification requirements. According to the complaint, ValueAct purchased these shares with the intent to influence the companies’ business decisions as the merger unfolded and therefore could not rely on the limited “investment-only” exemption to HSR notification requirements. The complaint details how ValueAct used its access to senior executives of both Halliburton and Baker Hughes to formulate merger and other business strategies with the companies.
“ValueAct’s substantial stock purchases made it one of the largest shareholders of two competitors in the midst of our antitrust review of the companies’ proposed merger, and ValueAct used its position to influence decision-making at both companies,” said Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division. “ValueAct was not entitled to avoid HSR requirements by claiming to be a passive investor. Given the seriousness of the violation and ValueAct’s prior HSR violations, we will be seeking significant civil penalties and an injunction against further violations.”
The HSR Act imposes notification and waiting period requirements for transactions meeting certain size thresholds so that such transactions can undergo premerger antitrust review by the department and the Federal Trade Commission. The HSR Act has a narrow exemption for acquisitions of less than 10 percent of a company’s outstanding voting securities if that acquisition is made “solely for the purposes of investment” with no intention of participating in the company’s business decisions.
Federal courts can assess civil penalties for premerger notification violations under the HSR Act in lawsuits brought by the department. The maximum civil penalty for an HSR violation is $16,000 per day.
ValueAct is an investment firm headquartered in San Francisco that advertises a strategy of “active, constructive involvement” in the management of the companies in which it invests. According to ValueAct’s website, 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.” ValueAct manages over $16 billion on behalf of investors.