Division Enforces the HSR Act in Cases Against ValueAct and Duke Energy

Division Update Spring 2017

The Division remains vigilant against violations of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (15 U.S.C. § 18a, the “HSR Act”). The Division enforced the HSR Act in two important cases in the past year. The HSR Act generally requires that parties to acquisitions above a certain threshold and under certain circumstances file a notification with the Division and the FTC and observe a waiting period to allow the agencies to review the transaction prior to its consummation. In both of these cases, the parties did not observe those requirements.

First, on April 4, 2016, the Division filed suit against certain ValueAct Capital entities for violating the HSR Act when they acquired shares of Baker Hughes and Halliburton in 2014 and 2015. In addition, on January 18, 2017, the Division filed a complaint alleging that, in connection with its acquisition of the Osprey Energy Center (Osprey), Duke Energy violated the Act by taking control of Osprey’s business before the HSR waiting period expired.



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In the fall of 2014, Baker Hughes and Halliburton—two of the three largest providers of oilfield services—announced their merger. Shortly thereafter, ValueAct purchased over $2.5 billion in stock of the companies without filing HSR notifications, making ValueAct among the largest shareholders of each company. ValueAct did not file notifications, claiming that its acquisitions were exempt from the HSR Act because they were “solely for the purpose of investment” and did not exceed 10 percent of the outstanding voting securities of either issuer. See 15 U.S.C. § 18a(c)(9) (the “investment-only exemption”). Under the HSR Rules, voting securities are acquired “solely for the purpose of investment” if the person acquiring such voting securities has no intention of participating in the formulation, determination, or direction of the basic business decisions of the issuer. 16 C.F.R. § 801.1(i)(1).

ValueAct did not qualify for the investment-only exemption because it intended to participate in the business decisions of both companies. Specifically, ValueAct intended to use its position as a major shareholder of both Halliburton and Baker Hughes to obtain access to management, to learn information about the companies and the merger in private conversations with senior executives, to influence those executives to improve the chances that the Halliburton-Baker Hughes merger would be completed, and ultimately to influence other business decisions regardless of whether the merger was consummated. Pursuant to a settlement filed July 12, 2016, ValueAct agreed to pay the largest ever HSR civil penalty of $11 million to resolve the allegations.

Duke Energy

Duke Energy

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In August 2014, Duke Energy agreed to terms to purchase Osprey from Calpine, a competing seller of wholesale electricity nationally and in Florida. As part of the acquisition, and prior to expiration of the HSR waiting period, Duke entered into a “tolling agreement” whereby Duke immediately began exercising control over Osprey’s output, and immediately began reaping the day-to-day profits and losses from the plant’s business. Duke, for example, assumed control of purchasing all the fuel for the plant, arranging for delivery of that fuel, and arranging for transmission of all energy generated. Duke retained the profit (or loss) from the difference between the price of the energy generated at Osprey and the cost to generate the energy, bearing all the risk of changes in the market price for fuel and the market price for energy. Based on these potential risks and rewards, Duke decided exactly how much energy would be generated by the plant on an hour-by-hour basis, and relayed those detailed instructions each day to plant personnel. Duke treated Osprey as it treated its own plants in making business decisions about output. Thus, Duke’s tolling agreement with Calpine gave it significant operational control over the Osprey plant, and allowed Duke to assume the risks and potential benefits of changes in the value of Osprey’s business.

The HSR Act requirements apply to a transaction if, as a result of the transaction, the acquirer will “hold” assets or voting securities valued above the thresholds. Under the HSR Rules to “hold” assets or voting securities means to possess “beneficial ownership, whether direct, or indirect through fiduciaries, agents, controlled entities or other means.” 16 C.F.R 801.1(c). Thus, under the Act, parties must make an HSR filing and observe a waiting period before transferring beneficial ownership of the assets or voting securities to be acquired. Although a tolling agreement alone does not necessarily confer beneficial ownership, the combination of Duke’s agreement to purchase Osprey and the tolling agreement transferred beneficial ownership of Osprey’s business to Duke before Duke had fulfilled its obligations under the HSR Act. Pursuant to a settlement filed simultaneously with the complaint, Duke agreed to pay a civil penalty of $600,000 to resolve the case.

Updated March 27, 2017