DOJ’s Suit Against Hedge Fund for HSR Act Violations May Clarify the HSR “Investment-Only” Exemption

On April 4, 2016, the U.S. Department of Justice (“DOJ”) filed a civil complaint against two ValueAct entities (the “ValueAct Funds”) and their general partner (collectively, “ValueAct”), alleging violations of the Hart-Scott-Rodino Act (“HSR”).1  The complaint alleges that the ValueAct Funds inappropriately relied on the investment-only HSR exemption and failed to comply with HSR premerger notification requirements when they acquired shares of Halliburton Company (“Halliburton”) and Baker Hughes Incorporated (“Baker Hughes”) in 2014 through 2015.2  In addition to significant civil penalties of at least $19 million, the DOJ is also seeking to enjoin ValueAct from any future violations of the HSR Act.

Unlike the recent Third Point “investment-only” enforcement action in 2015 (read Weil’s alert), where the parties had agreed to a proposed settlement, ValueAct has publicly stated that it will contest the DOJ’s action.3  Therefore, this action may provide an opportunity for a federal court to weigh in on the limits of the “investment-only” exemption.

Based on the DOJ’s complaint and press release, two additional factors appear to have contributed to the DOJ’s decision to seek such significant civil penalties.  First, the DOJ alleged that ValueAct acquired substantial amounts of Halliburton and Baker Hughes shares ($2.5 billion in total shares) during the DOJ’s antitrust review of the Halliburton-Baker Hughes merger with the intent to influence the merger’s outcome.  The DOJ has since challenged the Halliburton-Baker Hughes merger.4  Second, ValueAct had violated the HSR Act on two prior acquisitions in 2003 and 2005; no enforcement action was taken for its 2003 violation, but ValueAct paid a $1.1 million civil penalty to settle its 2005 violation.5


ValueAct is an activist investor hedge fund that pursues a strategy of “active, constructive involvement” in the management of the companies in which it invests.6  Halliburton and Baker Hughes are large providers of oilfield products and services around the world.  On November 14, 2014, Halliburton and Baker Hughes announced their intent to merge.7

According to the complaint, the ValueAct Funds made multiple acquisitions of Halliburton and Baker Hughes voting securities between November 28, 2014 and June 30, 2015.  The complaint also alleged that between November 28, 2014 and June 30, 2015, each of the ValueAct Funds acquired Halliburton shares exceeding $75.9 million and $76.3 million, which were the applicable HSR notification thresholds at the time of the acquisitions.8  Additionally, one of the ValueAct Funds acquired Baker Hughes voting securities exceeding $75.9 million.9

However, neither ValueAct Fund submitted an HSR premerger notification form for its respective acquisitions of Halliburton and Baker Hughes shares prior to exceeding the HSR threshold.  ValueAct did not make HSR filings on the ground that it qualified for the “investment-only” exemption to the HSR notification requirement.  The investment-only exemption applies if an acquirer holds ten percent or less of the issuer’s voting securities and holds the voting securities solely for investment purposes.  The acquirer, however, has the burden of showing eligibility for an exemption.  In its complaint, the DOJ stated that ValueAct could not rely on the “investment-only” exemption to the HSR notification requirement.  The DOJ cited ValueAct’s internal communications, communications with investors, communications with executive officials at both Halliburton and Baker Hughes, and public statements to establish ValueAct’s lack of investment-only intent.


The HSR Act and HSR Rules provide certain filing exemptions to acquisitions of voting securities that otherwise meet the applicable thresholds.  This includes an exemption for stock acquisitions made “solely for the purposes of investment,” as long as the acquirer does not acquire over ten percent of the issuer’s voting securities.10  The HSR Rules limit the exemption by making it available only if the acquirer has “no intention of participating in the formulation, determination, or direction of the basic business decisions of the issuer.”11

The DOJ cited four types of documents and communications to support the allegations in its complaint that ValueAct lacked an investment-only intent.

First, the DOJ cited draft internal memoranda and internal ValueAct communications among senior ValueAct executives describing ValueAct’s intention to influence the management and business direction of both Halliburton and Baker Hughes, including with respect to the parties’ merger.  For example, an internal communication noted that ValueAct’s share ownership in Halliburton would allow it to influence shareholder approval over the merger.12

Second, ValueAct communicated to its investors that it intended to exercise influence over both companies.  For example, ValueAct’s stake in Halliburton would allow it to be “a strong advocate for the deal to close.”13  Its ownership in Halliburton would also allow it to work with Halliburton’s board and management to integrate Baker Hughes into Halliburton’s business.14

Third, the DOJ cited multiple ValueAct communications with Halliburton’s and Baker Hughes’ executive management about ValueAct’s suggestions regarding the merger and proposed changes in strategy and operations if the merger was not completed.  These included proposals to divest certain Baker Hughes business lines, change Halliburton’s compensation plan, and offers to assist with merger integration.  These communications included emails, written presentations, telephone calls, and in-person meetings with both companies’ officials regarding these issues as well as other merger and management related topics.15

Finally, on January 16, 2015, ValueAct filed a Schedule 13D with the Securities and Exchange Commission, publicly disclosing its stake in Baker Hughes and reporting that “it might discuss ‘competitive and strategic matters’ with Baker Hughes management, and might ‘propos[e] changes in [Baker Hughes’] operations.’”16

In light of these actions, the DOJ alleged that each of the ValueAct Funds violated the HSR Act by failing to submit timely HSR forms and observe the HSR waiting periods, before acquiring Halliburton shares in excess of the $75.9 million and $76.3 million thresholds (depending on the time of the acquisitions).  The DOJ also alleged that one of the ValueAct Funds violated the HSR Act by failing to submit a timely HSR form and observe the HSR waiting period, before acquiring Baker Hughes shares in excess of $75.9 million.

The penalties for HSR violations are civil penalties of up to $16,000 for each day that an acquirer is in violation of the HSR Act.  Both ValueAct Funds have sold sufficient Halliburton voting securities such that each fund is currently below the HSR threshold, and the DOJ’s complaint alleged violations of the HSR Act for each day the funds held Halliburton voting securities in excess of the HSR notification threshold (without an applicable exemption).  The ValueAct Fund that acquired Baker Hughes shares in excess of the HSR notification threshold, however, presently remains in violation of the HSR Act (at least as of the time of the complaint).


  • This HSR enforcement action marks the third time in four years the agencies have alleged that certain acquirers failed to file an HSR notification and could not avail themselves of the investment-only exemption.17
  • This matter is still active and could provide for an opportunity for a federal court to define the boundaries of the “investment-only” exemption. Unlike previous enforcement actions that were simultaneously announced with proposed settlements, ValueAct has not settled with the DOJ and has publicly stated its intent to dispute the DOJ’s action.
  • The scope of ValueAct’s conduct alleged in the DOJ’s complaint appears to be consistent with previous DOJ and Federal Trade Commission (“FTC”) enforcement actions that rejected the use of the investment-only exemption. However, ValueAct has elected to litigate the HSR violation.  Although the federal court may find that ValueAct’s actions were consistent with the investment-only exemption, ValueAct’s decision not to settle the violation may expose it to a more significant civil penalty and more extensive injunctive relief.
  • This action may clarify when activist shareholders’ conduct may be inconsistent with the HSR rules. The FTC’s commissioners were divided on this issue in their recent enforcement action against Third Point, another activist investor.  In their recent minority dissenting statement against the HSR violation settlement with Third Point, FTC Commissioner Maureen Ohlhausen and former Commissioner Joshua Wright noted that “[n]ot only is shareholder advocacy unlikely to raise competitive concerns, even if it did, given that the transaction would not raise the unscrambling of assets concern that motivated the adoption of the HSR Act, any necessary remedies can be obtained post-consummation without imposing a substantial burden on either the agency or the parties.”18
  • The government’s action reaffirms the antitrust agencies’ consistent guidance that stock purchasers, including private equity firms and activist shareholders, intending to influence the direction of a business should keep in mind the HSR premerger notification thresholds and filing requirements.
Endnotes    (↵ returns to text)
  1. See DOJ press release, “Justice Department Sues ValueAct for Violating Premerger Notification Requirements,” dated April 4, 2016 , available at (hereinafter the “DOJ Press Release”), as well as the complaint and related case filings, available at (hereinafter the “DOJ Complaint”).
  2. See DOJ Complaint at ¶ 43, 48, 53.
  3. U.S. Sues ValueAct, Saying Hedge Fund Violated Antitrust Law, Leslie Picker, New York Times, April 4, 2016, available at
  4. See DOJ Press Release, “Justice Department Sues to Block Halliburton’s Acquisition of Baker Hughes,” dated April 6, 2016, available at
  5. See DOJ Press Release.
  6. See DOJ Complaint at ¶ 2.
  7. See Halliburton press release, “Halliburton and Baker Hughes Reach Agreement to Combine in Stock and Cash Transaction Valued at $34.6 Billion,” dated November 17, 2014, available at
  8. See DOJ Complaint at ¶ 42-43, 47-18 (noting that one of the ValueAct funds exceeded the $75.9 million threshold in 2014 and continued to purchase shares after the 2015 thresholds became effective).
  9. See id. at ¶ 52-53.
  10. See HSR Rule 802.9.
  11. See Formal Interpretation No. 4, HSR Rules at n.3 (January 17, 1979), available at
  12. See DOJ Complaint at ¶ 21.
  13. See id.
  14. See id. at ¶ 25.
  15. See id. at ¶ 31-32.
  16. See id. at ¶ 28.
  17. See Weil Antitrust Alert, “Settlement of an HSR Act Violation Highlights Limits on the Applicability of the ‘Investment-only’ Exemption,” dated October 2, 2012, available at; see also Hedge Fund’s Settlement with FTC Highlights Limits to HSR Investment-Only Exemption, dated August 26, 2015, available at
  18. See Dissenting Statement of Commissioners Maureen K. Ohlhausen and Joshua D. Wright In the Matter of Third Point, dated August 24, 2015, at 2, available at