Daily GPI / M&A

Investment Firm Sued For Attempting to Influence Halliburton, Baker Merger

An investment firm that took $2.6 billion in stakes in Halliburton Co. and Baker Hughes Inc. after they had agreed to merge, with the intent to formulate merger strategies with the companies, was sued Monday by the Justice Department.

The Department of Justice (DOJ) filed a civil lawsuit against ValueAct Capital in the U.S. District Court for the Northern District of California for violating the reporting and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR).

Halliburton and Baker announced their $34.6 billion tie-up in late 2014 (see Daily GPINov. 17, 2014). Following the announcement, ValueAct purchased voting shares of the two oilfield services giants without complying with the HSR notification requirements, DOJ said.

The investment firm 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 HSR notification requirements," according to the complaint. ValueAct used its access to "senior executives of both Halliburton and Baker Hughes to formulate merger and other business strategies with the companies."

The substantial stock purchases made ValueAct "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 DOJ Assistant Attorney General Bill Baer of the 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."

DOJ did not detail what the prior violations by ValueAct entailed.

HSR imposes notification/waiting period requirements for transactions that meet certain size thresholds so that they may undergo pre-merger antitrust review by DOJ and the Federal Trade Commission. A narrow exemption exists for acquisitions of less than 10% of a company's outstanding voting securities -- if the acquisition is made only as an investment and there is no intention to participate in a company's business decisions.

Violating HSR notification rules carries a maximum civil penalty of $16,000/day.

San Francisco-based ValueAct was formed in June 2000 initially to manage its founders' capital and some capital for outside investors. Today it manages more than $16 billion on behalf of its investors. The website said its business model focuses on acquiring "significant ownership stakes in a limited number of companies" with a goal to "work constructively with management and/or the company's board to implement a strategy or strategies that maximize returns for all shareholders."

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