The U.S. Department of Justice has sued certain ValueAct Capital entities over investments made in Houston-based oil field services giants Halliburton Co. and Baker Hughes Inc.
The DOJ claims the investments in the companies — which plan to merge in a $34.6 billion deal — violated the reporting and waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
After Halliburton’s planned acquisition of Baker Hughes was announced in November 2014, the San Francisco-based hedge fund bought more than “$2.5 billion of Halliburton and Baker Hughes voting shares without complying with the HSR Act’s notification requirements,” the DOJ said in an April 4 statement.
Under the HSR Act, deals of a certain size require notification and waiting periods to provide time for the DOJ’s and the Federal Trade Commission’s premerger antitrust review. There is a narrow exception for investors who acquire “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," according to the DOJ's statement.
The DOJ said ValueAct’s investment in Halliburton and Baker Hughes does not qualify for the exemption. The maximum civil penalty for such a violation is $16,000 per day, the DOJ said. According to Reuters, the DOJ is seeking a penalty of at least $19 million.
“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,” Bill Baer, an assistant attorney general with the DOJ’s antitrust division, said in the DOJ’s statement. “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 in--nction against further violations.”
ValueAct issued the following statement in response:
"ValueAct Capital is a long-term value investor. We take our obligations to comply with the law, including the HSR Act, extremely seriously. We have acted entirely properly and in compliance with the law. We fundamentally disagree with the Department of Justice’s allegations in this case.
"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 October, ValueAct disclosed an investment in Baker Hughes, calling the company undervalued and an attractive investment opportunity.
Halliburton's acquisition of Baker Hughes is facing significant antitrust scrutiny from regulators in the U.S. and Europe, where the European Commission has paused its review of the deal again as it awaits more information from the companies.