The government of the United States filed a lawsuit against ValueAct Capital, clarifying a long-running argument over what an activist investor exactly means.
According to Lexology, the US Department of Justice filed a civil antitrust lawsuit on April 4, 2016, against ValueAct. The Justice Department asserts that the ValueAct improperly relied on the "investment only" exemption to the HSR Act (Hart-Scott-Rodino) reporting requirement when it purchased over $2billion worth of stock in Baker Hughes and Halliburton. The DOJ also said that ValueAct has a clear intention of influencing strategies and activities of the companies.
ValueAct disputes such claim, saying it would challenge the DOJ lawsuit. Reuters reported that some communications the government cites as evidence are similar to discussions that are ever more common among traditional, buy-and-hold funds and companies in their portfolios.
The lawsuit comes as passive and active investors work side-by-side to apply pressure management at underperforming companies. The memo to clients from a New York law firm which specializes in financial services stated that the traditional funds may need to reevaluate their compliance with disclosure laws.
ValueAct also said that the "most fundamental principles of shareholder rights" grant it to have a relationship with the company management, engage in common course communications, and conduct due diligence on investments with other shareholders. The company thinks that the investment was entirely passive when it was first made and believes that Baker Hughes and Halliburton would benefit from the relationship, reports The Washington Post.
Meanwhile, an industry trade group stated that the lawsuit could restrain shareholders from addressing essential issues with board directors and corporate executives. Assistant Attorney General Bill Baer added that ValueAct was not entitled to avoid HSR requirements by citing to be a passive investor. Due to the seriousness of the violation and other HSR violations made by ValueAct, the DOJ will be seeking significant civil penalties.
