The U.S. Department of Justice on April 4 slapped ValueActCapital with an antitrust lawsuit, charging the San Francisco-based fund withbuying large positions in the stocks of oil service firms and without properlynotifying the government it would be an active investor.
The suit also hints that the proposed merger of the world'ssecond- and third-largest oilfield service firms may not be able to passanti-trust review by DOJ.
"ValueAct established these positions as Halliburtonand Baker Hughes were being investigated for agreeing to a merger thatthreatens to substantially lessen competition in numerous markets," DOJ'ssuit read, signaling the government's approval might be less than forthcoming.
Announced in November 2014, the $34.6 billion merger betweenthe two service giants has been repeatedly delayed by anti-trust regulators formore reviews.
The government contends that the ValueAct family of fundsbecame "one of the largest shareholders of both Halliburton and BakerHughes, without providing the government its statutory right to notice andprior review of the stock purchases."
Despite a sudden spasm of trading after the governmentannounced the suit, Baker Hughes shares only dropped about 3.5% to $41.47 pershare in heavy volume, while Halliburton shares slumped 3.1% to $34 per share.
Because ValueAct did not behave like a passive investor, thegovernment contends it violated anti-trust laws when it bought big chucks ofstock in both Halliburton and Baker Hughes and then met repeatedly withmanagement to guide the merger process and integrations efforts.
"ValueAct intended to use its position as a majorshareholder of these companies to obtain access to management, to learninformation about the merger and the companies' strategies in privateconversations with senior executives, to influence those executives to improvethe chances that the merger would be completed, and to influence other businessdecisions whether or not the merger went forward," the government said.
ValueAct had no immediate comment on the afternoon of April4.
According to DOJ, ValueAct should be fined at least $19million and be told to conform to the Hart-Scott-Rodino Act governing corporatemergers.
This is not the first time ValueAct pushed the limits of thelaw, DOJ said in its suit. In 2003, the fund was served a warning by regulatorsabout filing required notifications, and in 2005 ValueAct paid a $1.1 millionfine for violating the HSR Act for essentially the same behavior.
Federal anti-trust regulators say they need timelynotification of big stock purchases by firms seeking to influence themanagement of merging companies so they can investigate the new owners and seekinjunctions to head-off anti-competitive behavior.
The two ValueAct Capital Management LP funds named in the case, ValueActCapital Master Fund LP and ValueAct Co-Invest International LP have the samegeneral partner, VA Partners I LLC, which was also named as a defendant.