Hart-Scott-Rodino Act: ValueAct Pays Record Fine to Resolve Alleged HSR Violations

Sullivan & Cromwell LLP - July 14, 2016

On Tuesday, July 12, 2016, ValueAct agreed to pay a record fine of $11 million to settle allegations by the DOJ that it had violated the reporting requirements of the Hart-Scott-Rodino Act (“HSR Act”) by  improperly relying on the “investment only” exemption.  On April 4, 2016, the U.S. Department of Justice (“DOJ”) had filed a complaint against three ValueAct Capital-related entities (collectively, “ValueAct”), asserting that they had violated the reporting requirements of the HSR Act when they acquired voting securities, collectively valued at more than $2.5 billion, in both Baker Hughes and Halliburton.  All three ValueAct entities allegedly made acquisitions that exceeded the filing threshold, and the issue, as framed in the complaint, was solely whether the “investment only” exemption from the HSR Act—which applies if the purchaser’s holdings constitute less than ten percent of the stock of the company and the acquisition is “solely for the purpose of investment”—applied.  The DOJ alleged that the exemption did not apply in view of, among other things, ValueAct’s alleged efforts to influence the business decisions of both companies in connection with their proposed merger, which the DOJ sued to block.  The DOJ emphasized that the HSR process is “crucial to our ability to prevent anticompetitive mergers and acquisitions”—here, the proposed merger of Baker Hughes and Halliburton—suggesting that while investors need to be particularly careful about relying upon the “investment only” exemption at all times, the scrutiny may be even higher when investing in firms whose merger is the subject of substantive antitrust reviews by the enforcement agencies.