Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS—D.D.C.: Settlement approved in suit over hedge funds' premerger notification missteps, (Dec 18, 2015)

By Jeffrey May, J.D.

Today, the federal district court in Washington, D.C. approved a proposed final judgment, settling government allegations that three affiliated hedge fund companies and their management company, Third Point LLC, violated premerger reporting requirements in connection with their 2011 acquisitions of stock in Yahoo! Inc. The consent decree limits the ability of Third Point, LLC, Third Point Partners Qualified L.P., Third Point Ultra, Ltd., and Third Point Offshore Fund, Ltd. to rely on the investment-only exemption to the Hart-Scot-Rodino Act (HSR Act). The settlement did not include a civil penalties order, which is common in cases alleging violations of the HSR Act, because the alleged errors were inadvertent and not repeat offenses (U.S. v. Third Point LLC, December 18, 2015, Jackson, K.).

The consent decree, which had been filed for court approval by the Department of Justice at the request of the FTC, settled allegations that the defendants improperly relied on the investment-only exemption when they failed to report the stock purchases. Acquisitions of up to ten percent of voting securities are exempted from HSR requirements if they are made solely for investment purposes. However, at the time of the stock purchases, Third Point LLC, which made investment decisions on behalf of the funds, was taking actions inconsistent with an investment-only intent, according to the government.

Acquisitions solely for the purpose of investment are limited to situations in which the acquirer “has no intention in participating in the formulation, determination, or direction of the basic business decisions of the issuer.” The government contended in its complaint that the defendants and/or their agents had looked into finding a new CEO or new board members for Yahoo and made public statements that they were prepared to propose a slate of directors at a Yahoo annual meeting.

At the time the FTC announced the complaint in the matter, Commissioner Maureen K. Ohlhausen and then-Commissioner Joshua D. Wright voted against its filing. The dissenting commissioners suggested that the majority's interpretation of the investment-only exemption was too narrow. “[T]he stock acquisition at issue here presented absolutely no threat of competitive harm and the type of shareholder advocacy pursued by the respondent here often generates well-documented benefits to the market for corporate control,” according to the dissent.

Under the terms of the consent decree, the defendants are prohibited from relying on the investment-only exemption if they have: (1) contacted third parties to gauge their interest in joining the board of the target company; (2) communicated with the target company about proposed candidates for its board; or (3) engaged in other specified conduct in the four months prior to acquiring voting securities above the HSR Act threshold. Civil penalties were not assessed, based on several factors, including that the violation was inadvertent and short-lived, and this was the defendants’ first violation of the HSR Act, according to the government.

This case is No. 1:15-cv-01366.

Attorneys: Kenneth A. Libby, FTC, for United States. Theodore C. Whitehouse and William H. Rooney (Willkie Farr & Gallagher LLP) for Third Point Offshore Fund, Ltd., Third Point Ultra, Ltd., Third Point Partners Qualified LP and Third Point, LLC.

Companies: Third Point Offshore Fund, Ltd.; Third Point Ultra, Ltd.; Third Point Partners Qualified LP; Third Point, LLC

Cases: AcquisitionsMergers Antitrust FederalTradeCommissionNews DistrictofColumbiaNews