The Department of Justice (DoJ) has filed a civil antitrust lawsuit against ValueAct Capital for violating the reporting and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). According to sources familiar with the matter big shareholders were informed of the coming charges last week. Below readers can find ValueAct’s comments on Halliburton and Baker Hughes from its 2015 letter reviewed by ValueWalk, followed by the DOJ charges.
ValueAct Capital Master Fund. LP.
We have consolidated our investments in Halliburton Company (“Halliburton”) and Baker Hughes Incorporated (“Baker Hughes”) to ownership in one company: Baker Hughes, simplifying the investment and clarifying our role. Prolonged regulatory review of the merger in the tinned States and the European Union w ill likely push the review process past the April 30th closing deadline, at which point Baker Hughes’ board will vote on whether to extend the deadline or walk away from the deal. If the decision is to walk away. Baker Hughes will collect a $3.5 billion breakup fee from Halliburton. We remain supportive and hopeful that the merger closes. If it does not, however. we believe a standalone Baker Hughes is well positioned for an extended downturn, with a significant cost opportunity, a strategic collection of assets and one of the few pristine balance sheets in the industry. As the merger review process plays out, we would like to be a resource to the Baker Hughes management team and board as they navigate through the important decisions that will be required of them over the next several months.
We will refresh the portfolio by continuing to sell out of some of our longer term positions that have performed well and by looking for opportunities to reinvest those proceeds into a few new attractive core positions, The severe downturn in commodity prices is creating ripple effects throughout the industrial landscape with knock-on effects on all business to business companies, including the high quality businesses that we focus on. Dislocations may increase with a predicted wave of bankruptcies on the oil patch. We believe all of this should present attractive investment opportunities and will continue to look for companies with strong business models that generate cash now in good times and tad. Given the portfolio concentration and low turnover inherent in our investment strategy, we can afford to be very patient and selective when adding new investments.
We also feel well positioned with approximately $1.5 billion in cash reserves ready to deploy in fundamentally good businesses that meet our valuation criteria We will continue to strengthen our capital base with long-term investors who are aligned to ow strategy and time horizon.
Below is the press release from the DOJ
FOR IMMEDIATE RELEASE
Monday, April 4, 2016
Justice Department Sues ValueAct for Violating Premerger Notification Requirements
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.