U.S. regulator sues ValueAct over Halliburton-Baker Hughes disclosures

Mon Apr 4, 2016 6:10pm EDT
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By Michael Flaherty and Diane Bartz

(Reuters) - The U.S. Department of Justice on Monday sued ValueAct Capital for violating notification requirements related to Halliburton Co's (HAL.N: Quote) deal to buy rival Baker Hughes Inc (BHI.N: Quote), in a case that the activist hedge fund says it will fight.

The lawsuit centers on a 40-year old U.S. law that exempts investors who buy up to 10 percent of a company's voting securities from disclosing purchases made only for passive investment purposes.

The Department of Justice alleges that ValueAct was an active investor from the time it started to build its position in both companies shortly after the November 2014 merger agreement, and that the hedge fund violated the law - known as the Hart-Scott-Rodino (HSR) Act - by waiting too long to disclose its intentions.

"Plainly the regulators are trying to send a message that their view of what constitutes passivity is far more restrictive than what some portfolio managers apparently believe," said Christopher Davis, a partner at law firm Kleinberg Kaplan who chairs its mergers practice.

The lawsuit said ValueAct used its access to senior Halliburton and Baker Hughes executives to formulate the merger and other strategies. The government is seeking a civil penalty of at least $19 million - a penalty it deemed "significant."

"ValueAct was not entitled to avoid HSR requirements by claiming to be a passive investor," Assistant Attorney General Bill Baer of the Justice Department’s Antitrust Division said in a press release.

ValueAct, a $16 billion activist hedge fund, said it will contest the case, a departure from similar violation lawsuits that ended with investors settling with the government.

"We fundamentally disagree with the Department of Justice’s allegations in this case," the San Francisco-based hedge fund said in an emailed statement.   Continued...

Various Halliburton equipment being stored at the equipment yard in Alvarado, Texas June 2, 2015.  REUTERS/Cooper Neill