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From Antitrust Law Daily, April 4, 2016

Justice Department challenges funds’ unreported purchase of Halliburton, Baker Hughes shares

By Jeffrey May, J.D.

Recent acquisitions by two ValueAct investment funds of over $2.5 billion of voting securities of potential merger partners Halliburton Company and Baker Hughes Inc. violated the reporting and waiting period requirements of the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976, according to a complaint filed today by the Department of Justice Antitrust Division in the federal district court in San Francisco. The government contends that the acquisitions of shares were not exempt from HSR filing requirements under a limited investment-only exemption. The suit seeks civil penalties of at least $19 million and an injunction against further HSR Act violations (U.S. v. VA Partners I, LLC, Case No. 3:16-cv-01672).

According to the government's complaint, ValueAct promotes itself as having a strategy of “active, constructive involvement” in the management of the companies in which it invests. The Justice Department's complaint names VA Partners I, LLC, ValueAct Capital Master Fund, L.P., and ValueAct Co-Investment International, L.P.

After Halliburton and Baker Hughes—two of the world's largest providers of oilfield products and services in the world—announced in 2014 their intent to merge, ValueAct began acquiring significant holdings of the two companies, it was alleged. As a result, ValueAct purportedly became one of the largest shareholders of both companies.

Company documents show that ValueAct’s most senior executives planned from the outset to play an active role at Halliburton and Baker Hughes, the government claimed. ValueAct apparently intended to push management of both companies to complete the merger, which is still under review. Regardless of how the merger process unfolded, ValueAct intended to influence the business decisions of both companies, in the government’s view.

Antitrust chief’s reaction. “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 Bill Baer, Assistant Attorney General in charge of the Antitrust Division, in announcing the complaint. “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.”

Prior HSR filing issues. ValueAct funds previously have violated the HSR Act by acquiring voting securities without making the required HSR notifications, the government alleges. In 2008, the federal district court in Washington, D.C. approved a consent decree (2008-1 Trade Cases ¶75,998), resolving HSR allegations concerning three acquisitions made in 2005. That action followed corrective filings in 2003 regarding three other acquisitions of voting securities. Generally, the government excuses first-time HSR Act violation so long as a firm agrees to ensure future compliance.

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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