A few days ago, the DOJ brought an enforcement action against ValueAct for failing to comply with the HSR waiting period requirements. Here’s an excerpt from this great memo by Davis Polk’s Arthur Golden, Tom Reid and Laura Turano (& other memos are being posted in our “Shareholder Engagement” Practice Area):
We believe that this case will be important to watch because of the types of statements and actions by ValueAct that are cited by the DOJ as evidence of an intent to influence the business decisions of both companies. For example, the complaint identifies internal discussions at ValueAct regarding proposing changes to Halliburton’s executive compensation plan, and a meeting between ValueAct and Halliburton’s CEO during which ValueAct detailed its preferred approach to executive compensation, commented on Halliburton’s current compensation plan and proposed specific changes to the plan, as evidence of an intent to influence the business decisions of Halliburton. While this may have been part of a broader demonstration of lack of investment intent, it does seem to be (by itself) a typical subject of discussion with investors who do not seek to influence management or major corporate actions.
Although the ValueAct complaint will cause those shareholder activists who buy shares with an intention to engage with management and other shareholders to consider more carefully whether they are required to file for HSR clearance rather than rely upon the protection of the “passive investment” exemption, the practical impact of this may be limited. Some shareholder activists do not rely on the investment intent exemption but instead structure their investments so as to not be made by a special purpose entity that would exceed the “size of person” threshold (thus enabling the entity to buy up to $312.6 million of shares before a filing would be required) and split their investments across multiple special purpose entities to avoid an HSR filing while they acquire large stakes in the target company.
But, the ValueAct complaint should serve as a reminder to institutional investors that have traditionally considered themselves to be passive investors for HSR purposes. In the past, we have noted how institutional investors, which have typically engaged in quiet outreach, are taking an increasingly active and public role on corporate governance matters, and we have observed that the line between shareholder activists and institutional investors is blurring. Once an institutional or similar traditionally passive investor crosses the line—either by cooperating with shareholder activists in certain situations or by taking an increasingly assertive role with its portfolio companies—such an institution will have to examine whether it can claim to have a truly “passive” intent at the time of any future share purchases. It is important to note that this determination is often not a “one time” consideration given the frequent portfolio rebalancing and other holding changes of traditional institutional investors. For example, if the investor loses its “investment intent,” the subsequent acquisition of any additional shares may require a filing if the investor’s total holdings will exceed the applicable HSR threshold. Although an HSR filing, in the absence of substantive antitrust issues, is unlikely to significantly delay the strategy of a shareholder activist or a traditional institutional investor, it does involve notification of the target company, could chill cooperation among shareholder activists and institutional investors somewhat and certainly adds an important compliance component to their planning.
DOJ Kicks Off FCPA Enforcement Pilot Program
A few days ago, the DOJ’s Fraud Section released this “guidance memorandum” containing three initiatives, including an FCPA Pilot Program that will reduce fine beyond what is now available under the US Sentencing Guidelines for companies that voluntarily disclose possible FCPA violations, fully cooperate and implement timely and appropriate remediation. We’re posting related memos in our “FCPA” Practice Area.
Conflict Minerals: What You Can Learn from Our CY15 IPSAs & Auditability Reviews
In addition to the two blogs I posted this week on our “Proxy Season Blog” about Apple’s Form SD, check out this blog by Elm Sustainability Partners about what they learned from their IPSAs and auditability Reviews…
Also see my entry on “The Mentor Blog” today about “Who Should Be on the Conflict Minerals Team?“…
– Broc Romanek