The U.S. Department of Justice is suing an activist investment firm over antitrust allegations related to the Halliburton Co. (NYSE: HAL) and Baker Hughes Inc. (NYSE: BHI) merger, federal officials said April 4.
ValueAct Capital put nearly $2.5 billion into the companies’ voting shares without complying with antitrust notification requirements, the government said in a civil suit filed in U.S. District Court. The firm manages more than $16 billion on behalf of investors.
A federal complaint says ValueAct purchased the 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 notification requirements. ValueAct is accused of using its access to senior executives of Halliburton and Baker Hughes to formulate merger and other business strategies with the companies. The two companies are combining in a $35 billion deal.
ValueAct is accused of violating the reporting and waiting period requirements of the Hart-Scott-Rodino (HSR) 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,” 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.”
ValueAct said it had acted properly and in compliance with the law in a statement released to a variety of news outlets.
“We fundamentally disagree with the Department of Justice’s allegations in this case,” ValueAct said. “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.”
In November 2014, Baker Hughes and Halliburton announced their planned merger. ValueAct purchased voting shares and by May 2015, ValueAct was the largest buyer of Halliburton and Baker Hughes stock in the first quarter of 2015. The firm purchased 12.9 million shares of Halliburton and 8.2 million shares of Baker Hughes.
The maximum civil penalty for an HSR violation is $16,000 per day.
ValueAct has previously been sued on the grounds that it violated antitrust premerger notification rules. In December 2007, the Federal Trade Commission (FTC) fined ValueAct Capital Partners LP $1.1 million related to the acquisitions of three companies’ stock that required filings with the government under the HSR. The companies were Gartner Inc., Catalina Marketing Group and Acxiom Corp.
The HSR 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 FTC. The HSR Act has a narrow exemption for acquisitions of less than 10% 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.
ValueAct, based in San Francisco, 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 “the 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.”
Darren Barbee can be reached at dbarbee@hartenergy.com.
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