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ValueAct to Pay Record $11M Penalty For Attempting to Influence Halliburton, Baker Merger

Activist investment firm ValueAct on Tuesday agreed to pay a record $11 million to the U.S. Justice Department to settle allegations that it attempted to influence the Baker Hughes Inc. and Halliburton Co. merger, which has since been canceled.

The San Francisco-based firm invested a total of $2.6 billion in the two oilfield services giants after they agreed to merge in late 2014. The Justice Department filed a civil lawsuit earlier this year, claiming the firm made the investment to influence decisions related to the merger, in violation of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR) (see Daily GPIApril 4Nov. 17, 2014). The mega-merger was scuttled in early May (see Daily GPIMay 2).

"ValueAct acquired substantial stakes in Halliburton and Baker Hughes in the midst of our antitrust review of the companies' proposed merger and used its position to try to influence the outcome of that process and certain other business decisions," said DOJ's Principal Deputy Assistant Attorney General Renata Hesse, who heads the antitrust division. "ValueAct was not entitled to avoid the HSR requirements by claiming to be a passive investor, while at the same time injecting itself in this manner."

The HSR notification requirements "are the backbone of the government's merger review process and crucial to our ability to prevent anticompetitive mergers and acquisitions."

ValueAct also agreed to injunctive relief to prevent future violations and is enjoined from relying on the "investment-only" exemption "when it intends to influence, or is considering influencing, certain basic business decisions, including those relating to merger and acquisition strategy, corporate restructuring, and the company’s pricing, production capacity, or production output," DOJ said.

The highest HSR fine to date had been $5.67 million. ValueAct's record $11 million penalty and injunctive relief "demonstrate our continued commitment to vigorous enforcement of these important notification and waiting period requirements," Hesse said.

"ValueAct Capital fundamentally disagrees with DOJ's interpretation of the facts in connection with our investments in Halliburton and Baker Hughes," the firm said. "However, due to the sudden and unanticipated 150% increase in the potential penalties associated with alleged HSR violations effective Aug. 1, we felt we had no choice but to resolve this case as quickly as possible." The litigation "will not impact our business or strategy going forward."

The HSR Act imposes notification and waiting period requirements for transactions meeting certain size thresholds to ensure that the transactions undergo pre-merger antitrust review by DOJ and the Federal Trade Commission. The law has a narrow exemption for acquisitions of less than 10% of a company's outstanding voting securities if the acquisition is made "solely for the purposes of investment" and the purchaser has no intention of participating in the company's business decisions.

Following a 60-day comment period, the proposed settlement would be finalized by the U.S. District Court for the Northern District of California.

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