[Federal Register Volume 81, Number 204 (Friday, October 21, 2016)]
[Notices]
[Pages 72832-72837]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-25525]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. VA Partners I, LLC, et al.; Public Comment and 
Response on Proposed Final Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States hereby publishes below the comment 
received on the proposed Final Judgment in United States v. VA Partners 
I, LLC, et al., Case No. 16-cv-01672 (WHA) (N.D. Cal.), together with 
the Response of the United States to Public Comment.
    Copies of the comment and the United States' Response are available 
for inspection at the Department of Justice Antitrust Division, 450 
Fifth Street NW., Suite 1010, Washington, DC 20530 (telephone: 202-514-
2481), on the Department of Justice's Web site at https://www.justice.gov/atr/case/us-v-va-partners-i-llc-et-al, and at the 
Office of the Clerk of the United States District Court for the North 
District of California, 450 Golden Gate Avenue, San Francisco, CA 
94102. Copies of any of these materials may also be obtained upon 
request and payment of a copying fee.

Patricia A. Brink,
Director of Civil Enforcement.

Kathleen S. O'Neill
Joseph Chandra Mazumdar
Brian E. Hanna
Robert A. Lepore
U.S. Department of Justice
Antitrust Division
450 Fifth Street NW., Suite 8000
Washington, DC 20530
Tel: (202) 307-2931
Fax: (202) 307-2874
Email: kathleen.oneill@usdoj.gov
Email: chan.mazumdar@usdoj.gov
Email: brian.hanna2@usdoj.gov
Email: robert.lepore@usdoj.gov

Tai Milder
U.S. Department of Justice
Antitrust Division
450 Golden Gate Avenue, Room 10-0101
Box 36046
San Francisco, CA 94012
Tel: (415) 934-5300
Fax: (415) 934-5399
Email: tai.milder@usdoj.gov

Attorneys for Plaintiff United States of America

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA 
SAN FRANCISCO DIVISION

UNITED STATES OF AMERICA,

Plaintiff, v.

VA PARTNERS I, LLC, et al.,

Defendants.

Case No. 16-cv-01672 (WHA)

PLAINTIFF'S RESPONSE TO PUBLIC COMMENT

RESPONSE OF THE UNITED STATES TO PUBLIC COMMENT ON THE PROPOSED FINAL 
JUDGMENT

    Pursuant to the Antitrust Procedures and Penalties Act (``APPA''), 
15 U.S.C. Sec.  16(b)-(h), the United States hereby files the single 
public comment received concerning the proposed Final Judgment in this 
case and responds to this comment. After careful consideration of the 
comment, the United States continues to believe that the proposed Final 
Judgment provides an effective and appropriate remedy for the antitrust 
violations alleged in the Complaint. The United States will move the 
Court for entry of the proposed Final Judgment after the public comment 
and this response have been published in the Federal Register pursuant 
to 15 U.S.C. Sec.  16(d).

I. PROCEDURAL HISTORY

    On April 4, 2016, the United States filed a civil antitrust 
Complaint against VA Partners I, LLC, (``VA Partners I''), ValueAct 
Capital Master Fund, L.P. (``Master Fund''), and ValueAct Co-Invest 
International, L.P. (``Co-Invest Fund'') (collectively, ``ValueAct'' or 
``Defendants''), to remedy violations of Section 7A of the Clayton Act, 
15 U.S.C. Sec.  18a, commonly known as the Hart-Scott-Rodino Antitrust 
Improvements Act of 1976 (the ``HSR Act'').
    Following the filing of the Complaint, the parties engaged in 
settlement discussions that culminated in a consensual resolution of 
this matter. On July 12, 2016, the United States filed a proposed Final 
Judgment, a Stipulation and Proposed Order, and a Competitive Impact 
Statement (``CIS'') that explains how the proposed Final Judgment is 
designed to apply an appropriate penalty for, and adequately restrain, 
Defendants' HSR Act violations. (ECF No. 38, 39.) As required by the 
APPA,

[[Page 72833]]

the United States published the proposed Final Judgment and CIS in the 
Federal Register on July 25, 2016. See 81 Fed. Reg. 48,450 (July 25, 
2016). In addition, the United States ensured that a summary of the 
terms of the proposed Final Judgment and the CIS, together with 
directions for the submission of written comments, were published in 
The Washington Post and the San Francisco Chronicle on seven different 
days during the period of July 18, 2016 to July 24, 2016. See 15 U.S.C. 
Sec.  16(c). The 60-day waiting period for public comments ended on 
September 23, 2016. One comment was received and is described below and 
attached as Exhibit 1.

II. THE COMPLAINT AND PROPOSED SETTLEMENT

    The Complaint alleges that ValueAct violated the HSR Act by failing 
to comply with the Act's premerger notification and reporting 
requirements in connection with its acquisition of voting securities of 
Halliburton Co. (``Halliburton'') and Baker Hughes Inc. (``Baker 
Hughes'') in 2014 and 2015.
    The HSR Act states that ``no person shall acquire, directly or 
indirectly, any voting securities of any person'' exceeding certain 
thresholds until that person has filed pre-acquisition notification and 
report forms with the Antitrust Division of the Department of Justice 
(``DOJ'') and the Federal Trade Commission (``FTC'') (collectively, the 
``Agencies'') and the post-filing waiting period has expired. 15 U.S.C. 
Sec.  18a. A key purpose of the notification and waiting period is to 
protect consumers and competition from potentially anticompetitive 
transactions by providing the Agencies an opportunity to conduct an 
antitrust review of proposed acquisitions of voting securities 
exceeding certain thresholds before they are consummated.
    As alleged in the Complaint and described further in the CIS, 
ValueAct made substantial purchases of stock in two direct competitors 
with the intent to participate in those companies' business decisions, 
without first complying with the notification and waiting period 
requirements of the HSR Act. Through these purchases, ValueAct 
simultaneously became one of the largest shareholders of both 
Halliburton and Baker Hughes. ValueAct established these positions as 
Halliburton and Baker Hughes--the second- and third-largest providers 
of oilfield services in the world--were being investigated for agreeing 
to a merger that threatened to substantially lessen competition in over 
twenty product markets in the United States. The United States filed a 
lawsuit to challenge the merger on April 6, 2016, and Halliburton and 
Baker Hughes abandoned the transaction a few weeks later. ValueAct's 
failure to comply with the HSR Act risked the government's ability to 
protect competition because it prevented the United States from 
reviewing in advance ValueAct's stock acquisitions, which were made 
with the intent of participating in the companies' business decisions 
and intervening with the management of each firm as necessary to 
increase the probability of the Halliburton-Baker Hughes merger being 
completed.
    The Complaint alleges that Defendants could not excuse their 
failure to file the necessary notification and reporting forms by 
relying on the HSR Act's limited exemption for acquisitions made 
``solely for the purposes of investment'' (the ``investment-only 
exemption''). Section 18a(c)(9) of the HSR Act exempts ``acquisitions, 
solely for the purpose of investment, of voting securities, if, as a 
result of such acquisition, the securities acquired or held do not 
exceed 10 per centum of the outstanding voting securities of the 
issuer.'' As explained in the regulations implementing the HSR Act, 
voting securities are held ``solely for the purpose of investment'' if 
the acquirer has ``no intention of participating in the formulation, 
determination, or direction of the basic business decisions of the 
issuer.'' 16 C.F.R. Sec.  801.1(i)(1) (``HSR Rule 801.1(i)(1)'').
    As alleged in the Complaint, ValueAct did not qualify for the 
investment-only exemption because it intended from the time it 
purchased stock in these companies 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 the decisions of these senior executives in a manner that 
increased the likelihood that Halliburton and Baker Hughes would be 
able to complete their anticompetitive merger; and ultimately to 
influence other business decisions regardless of whether the merger was 
consummated. The totality of the evidence, as described further in the 
Complaint, demonstrates that ValueAct was not entitled to claim the 
investment-only exemption.
    The proposed Final Judgment provides for injunctive relief and the 
payment of civil penalties, which are designed to prevent future 
violations of the HSR Act. Specifically, the proposed Final Judgment 
prohibits Defendants from relying on the investment-only exemption if 
they intend to take, or their investment strategy identifies 
circumstances in which they may take, any of several specifically 
enumerated actions that reflect active participation in the company in 
which they are investing. The prohibited conduct provisions are aimed 
at deterring future HSR violations of the sort alleged in the 
Complaint. While this provision does not represent a comprehensive list 
of all conduct that would disqualify an acquirer of voting securities 
from relying on the investment-only exemption, it is aimed at deterring 
conduct that poses the greatest threat to competition. The proposed 
Final Judgment also provides for compliance, access, and inspection 
procedures to promote Defendants' compliance with the proposed Final 
Judgment and to enable the United States to monitor such compliance. 
Finally, the proposed Final Judgment imposes an $11 million civil 
penalty for Defendants' HSR Act violation. This penalty reflects the 
gravity of the conduct at issue and will adequately deter ValueAct and 
other companies from future HSR Act violations.

III. STANDARD OF JUDICIAL REVIEW

    The APPA requires that proposed consent judgments in antitrust 
cases brought by the United States be subject to a sixty (60) day 
comment period, after which the court shall determine whether entry of 
the proposed Final Judgment is ``in the public interest.'' 15 U.S.C. 
Sec.  16(e)(1). In making this public interest determination, the Court 
is required to consider:

    (A) the competitive impact of such judgment, including termination 
of alleged violations, provisions for enforcement and modification, 
duration of relief sought, anticipated effects of alternative remedies 
actually considered, whether its terms are ambiguous, and any other 
competitive considerations bearing upon the adequacy of such judgment 
that the court deems necessary to a determination of whether the 
consent judgment is in the public interest; and
    (B) the impact of entry of such judgment upon competition in the 
relevant market or markets, upon the public generally and individuals 
alleging specific injury from the violations set forth in the complaint 
including consideration of the public benefit, if any, to be derived 
from a determination of the issues at trial.

15 U.S.C. Sec.  16(e)(1)(A) & (B).

[[Page 72834]]

    The public interest inquiry is necessarily a limited one, as the 
United States is entitled to deference in crafting its antitrust 
settlements, especially with respect to the scope of its complaint and 
the adequacy of its remedy. See generally United States v. Microsoft 
Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995) (holding that government is 
entitled to ``broad discretion to settle with the defendant within the 
reaches of the public interest''); United States v. SBC Commc'ns, Inc., 
489 F. Supp. 2d 1, 10-11 (D.D.C. 2007) (assessing public interest 
standard under the Tunney Act); United States v. US Airways Group, 
Inc., 38 F. Supp. 3d 69, 75 (D.D.C. 2014) (noting that the court's 
``inquiry is limited'' because the government has ``broad discretion'' 
to determine the adequacy of the relief secured through a settlement); 
United States v. InBev N.V./S.A., No. 08-1965 (JR), 2009-2 Trade Cas. 
(CCH) ] 76,736, 2009 U.S. Dist. LEXIS 84787, at *3, (D.D.C. Aug. 11, 
2009) (noting that the court's review of a consent judgment is limited 
and only inquires ``into whether the government's determination that 
the proposed remedies will cure the antitrust violations alleged in the 
complaint was reasonable, and whether the mechanism to enforce the 
final judgment are clear and manageable'').
    Under the APPA, a court considers, among other things, the 
relationship between the remedy secured and the specific allegations 
set forth in the government's complaint, whether the decree is 
sufficiently clear, whether enforcement mechanisms are sufficient, and 
whether the decree may positively harm third parties. See Microsoft, 56 
F.3d at 1458-62. With respect to the adequacy of the relief secured by 
the decree, a court may not ```engage in an unrestricted evaluation of 
what relief would best serve the public.''' United States v. BNS, Inc., 
858 F.2d 456, 462 (9th Cir. 1988) (quoting United States v. Bechtel 
Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d 
at 1460-62; United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 
(D.D.C. 2001); InBev, 2009 U.S. Dist. LEXIS 84787, at *3. Courts have 
held that:

[t]he balancing of competing social and political interests affected by 
a proposed antitrust consent decree must be left, in the first 
instance, to the discretion of the Attorney General. The court's role 
in protecting the public interest is one of insuring that the 
government has not breached its duty to the public in consenting to the 
decree. The court is required to determine not whether a particular 
decree is the one that will best serve society, but whether the 
settlement is ``within the reaches of the public interest.'' More 
elaborate requirements might undermine the effectiveness of antitrust 
enforcement by consent decree.

Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).
    Courts ``may not require that the remedies perfectly match the 
alleged violations.'' SBC Commc'ns, 489 F. Supp. 2d at 17. Rather, the 
ultimate question is whether ``the remedies [obtained in the decree 
are] so inconsonant with the allegations charged as to fall outside of 
the `reaches of the public interest.''' Microsoft, 56 F.3d at 1461. 
Accordingly, the United States ``need only provide a factual basis for 
concluding that the settlements are reasonably adequate remedies for 
the alleged harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17; see also 
United States v. Apple, Inc., 889 F. Supp. 2d 623, 631 (S.D.N.Y. 2012). 
And, a ``proposed decree must be approved even if it falls short of the 
remedy the court would impose on its own, as long as it falls within 
the range of acceptability or is within the reaches of the public 
interest.'' United States v. Am. Tel. & Tel. Co., 552 F. Supp. 131, 151 
(D.D.C. 1982) (citations and internal quotations omitted); see also 
United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 
1985) (approving the consent decree even though the court would have 
imposed a greater remedy).
    In its 2004 amendments to the APPA,\1\ Congress made clear its 
intent to preserve the practical benefits of utilizing consent decrees 
in antitrust enforcement by adding the unambiguous instruction that 
``[n]othing in this section shall be construed to require the court to 
conduct an evidentiary hearing or to require the court to permit anyone 
to intervene.'' 15 U.S.C. Sec.  16(e)(2). The procedure for the public 
interest determination is left to the discretion of the court, with the 
recognition that the court's ``scope of review remains sharply 
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC 
Commc'ns, 489 F. Supp. 2d at 11; see also United States v. Enova Corp., 
107 F. Supp. 2d 10, 17 (D.D.C. 2000) (``[T]he Tunney Act expressly 
allows the court to make its public interest determination based on the 
basis of the competitive impact statement and response to public 
comments alone.''); US Airways, 38 F. Supp. 3d at 76 (same).
---------------------------------------------------------------------------

    \1\ The 2004 amendments substituted ``shall'' for ``may'' when 
setting forth the relevant factors for courts to consider and 
amended the list of factors to focus on competitive considerations 
and to address potentially ambiguous judgment terms. Compare 15 
U.S.C. Sec.  16(e) (2004), with 15 U.S.C. Sec.  16(e)(1) (2006); see 
also SBC Commc'ns, 489 F. Supp. 2d at 11 (concluding that the 2004 
amendments ``effected minimal changes'' to Tunney Act review).
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IV. SUMMARY OF PUBLIC COMMENT AND RESPONSE OF THE UNITED STATES

    During the 60-day comment period, the United States received one 
comment, from Phillip Goldstein, manager of activist hedge fund Bulldog 
Investors. Mr. Goldstein does not argue that the relief set forth in 
the proposed Final Judgment is inadequate to address the allegations in 
the Complaint, nor does he assert that the terms of the decree should 
be altered in any particular way. Instead, Mr. Goldstein claims that it 
``appears'' that ValueAct settled this matter because the FTC increased 
the civil penalties for HSR violations and took the position that such 
increases could apply retroactively. Mr. Goldstein also claims that HSR 
Rule 801.1(i)(1)--the FTC's 1978 rule explaining the meaning of the 
``investment only'' exemption--``irrationally'' draws a distinction 
between passive and active investors and thus should be revised. Mr. 
Goldstein further claims that HSR Rule 801.1(i)(1) is unconstitutional 
because it violates the First Amendment. In light of these arguments, 
Mr. Goldstein urges the United States to seek a stay of this 
enforcement action until this rule is revised. As explained below, none 
of Mr. Goldstein's arguments warrant delaying entry of the proposed 
Final Judgment.
    First, as fully detailed in the CIS, the United States settled this 
case because it determined that the injunction and $11 million penalty 
imposed on ValueAct was in the public interest because this relief 
adequately addresses and reflects the gravity of ValueAct's wrongful 
conduct and will strongly deter ValueAct and other companies from 
violating the HSR Act. None of Mr. Goldstein's arguments provide a 
basis for questioning, let alone, overruling the United States' broad 
discretion in reaching this determination.
    Second, Mr. Goldstein's passing reference to ValueAct's supposed 
``coerced capitulation'' in agreeing to settle this action misses the 
mark because the sole purpose of the Tunney Act review process is to 
determine why the Agencies--rather than a defendant--decided to settle 
a civil antitrust enforcement action and whether doing so was in the 
public interest. Bechtel, 648 F.2d at 666 (``The court's role in [the 
Tunney Act review process] is one of insuring that the government has 
not breached its duty to the public in

[[Page 72835]]

consenting to the decree . . . [and] to determine . . . whether the 
settlement is `within the reaches of the public interest.'''); Inbev, 
2009 U.S. Dist. LEXIS 84787, at *3 (noting that the relevant inquiry 
during the Tunney Act review process is ``whether the government's 
determination that the proposed remedies will cure the antitrust 
violations alleged in the complaint was reasonable''). In any event, 
Mr. Goldstein's assertion that ValueAct was purportedly forced to 
settle because the FTC increased the potential fines during the 
pendency of this action ignores the fact that the $11 million fine that 
ValueAct agreed to pay was within the fine amount that the United 
States sought when it filed this action and that this amount was based 
on the penalties in effect prior to publication of the FTC's interim 
final rule on June 30, 2016. See Cmplt. ] 6 & Request for Relief.
    Third, Mr. Goldstein's lengthy argument that the distinction drawn 
in HSR Rule 801.1(i)(1) between passive and active investors is 
``irrational'' and should be revised is similarly outside the scope of 
this proceeding. As noted above, the court's inquiry in a Tunney Act 
proceeding is limited to ``whether the government's determination that 
the proposed remedies will cure the antitrust violations alleged in the 
complaint was reasonable, and whether the mechanism[s] to enforce the 
final judgment are clear and manageable.'' InBev, 2009 U.S. Dist. LEXIS 
84787, at *3. Mr. Goldstein's assertions that HSR Rule 801.1(i)(1)--a 
rule that has been in effect for nearly thirty years--is ``irrational'' 
and should be revised are wholly irrelevant to the sole question before 
the Court: whether the proposed Final Judgment adequately addresses the 
harms alleged in the Complaint. In other words, Mr. Goldstein's 
assertions are plainly outside the scope of the limited review that 
Congress established under the Tunney Act. To the extent Mr. Goldstein 
wishes to dispute the appropriateness of HSR Rule 801.1(i)(1) and how 
it is applied, he can direct his suggestions to the FTC (or could have 
commented when the rule was originally passed \2\). He cannot, however, 
use his general opposition to HSR Rule 801.1(i)(1) as a basis to reject 
or delay entry of the proposed Final Judgment.
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    \2\ Contrary to Mr. Goldstein's comment, the original revised 
HSR rules, including 16 C.F.R. Sec.  801.1(i)(1), were subject to 
public comment prior to being adopted. See 42 Fed. Reg. 39040, 39047 
(Aug. 1, 1977).
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    Finally, Mr. Goldstein's suggestion that this Court should reject 
the proposed Final Judgment because HSR Rule 801.1(i)(1) is 
``unconstitutional'' has no merit. To the extent that this assertion--
which has no bearing on whether the proposed Final Judgment adequately 
addresses the antitrust violations alleged in the Complaint--is 
properly before the Court, HSR Rule 801.1(i)(1) is content neutral and 
does not violate the First Amendment. Even if the rule implicated First 
Amendment interests, it would readily withstand review. See 
Cableamerica Corp. v. FTC, 795 F. Supp. 1082, 1093 (N.D. Ala. 1992) 
(dismissing claim that the FTC's enforcement of the HSR Act's reporting 
requirements violated the plaintiff's First Amendment rights).
    For all of these reasons, Mr. Goldstein's public comment provides 
no basis to deny or delay entry of the proposed Final Judgment.

V. CONCLUSION

    After reviewing the public comment, the United States continues to 
believe that the proposed Final Judgment, as drafted, provides an 
effective and appropriate remedy for the antitrust violations alleged 
in the Complaint, and is therefore in the public interest. The United 
States will move this Court to enter the proposed Final Judgment after 
the comment and this response are published in the Federal Register.

Date: October 17, 2016

Respectfully submitted,

/s/Kathleen S. O'Neill
Kathleen S. O'Neill
U.S. Department of Justice
Antitrust Division
450 5th St. NW, 8000
Washington, DC 20530
Tel: (202) 307-2931
Fax: (202) 307-2784
Email: kathleen.oneill@usdoj.gov
Phillip Goldstein, 60 Heritage Drive, Pleasantville, NY 10570 
pgoldstein@bulldoginvestors.com//(914) 747-5262

Kathleen S. O'Neill, Chief
Antitrust Division
U.S. Department of Justice
450 Fifth Street N.W., Suite 8000
Washington, DC. 20530

July 27, 2016

United States of America v. VA Partners I, LLC, et al., Case No. 16-cv-
01672 (WHA)

Dear Ms. O'Neill,

    The announced settlement of the referenced matter appears to be a 
product of coerced capitulation rather than of the parties' relative 
assessments of the merits. It appears that ValueAct, in response to the 
FTC's post-litigation decision to dramatically increase the penalties 
for violations of the Hart-Scott-Rodino Antitrust Improvements Act (the 
``HSR Act'') and to apply them retroactively, made a rational decision 
to settle.\1\ As a result, the settlement avoids judicial scrutiny of, 
and perpetuates (by virtue of its in terrorem effect) a rule that, as 
explained below, should never have been adopted. For those reasons, the 
settlement is not in the public interest.
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    \1\ In a statement issued to news media, ValueAct explained why 
it settled:
    ValueAct Capital fundamentally disagrees with DOJ's 
interpretation of the facts in connection with our investments in 
Halliburton and Baker Hughes. However, due to the sudden and 
unanticipated 150 percent increase in the potential penalties 
associated with alleged Hart Scott Rodino violations effective 
August 1, we felt we had no choice but to resolve this case as 
quickly as possible. We are pleased to have come to a resolution to 
this litigation that will not impact our business or strategy going 
forward.
---------------------------------------------------------------------------

    First, the enforcement action that the settlement resolves is based 
on a dubious premise, i.e., that the statutory phrase ``solely for the 
purposes of investment'' in connection with reporting and waiting 
period requirements of HSR Act means ``solely for the purposes of 
passive investment.'' (Emphasis added.) While the FTC has long held 
that position, to my knowledge, the rule adopting it has never been 
subjected to judicial review to determine whether the FTC's addition of 
the word ``passive'' (which is absent in the statute) is reasonable. As 
explained below, it is not only unreasonable, it is irrational.
    Rule 801.1(i)(1), which was apparently adopted without public 
comment in 1978, states: ``Voting securities are held or acquired 
`solely for the purpose of investment' if the person holding or 
acquiring such voting securities has no intention of participating in 
the formulation, determination, or direction of the basic business 
decisions of the issuer.'' However, in the context the HSR Act, the 
purpose of which is to permit the FTC to analyze potential 
anticompetitive effects of business combinations before they occur, any 
distinction between an acquisition of stock by a passive investor and 
an investor that seeks to influence management (in contrast to an 
acquisition by a competitor, or a significant customer, supplier, or 
service provider \2\) is irrational as the facts in this case 
illustrate.
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    \2\ For example, a large acquisition of FedEx stock by Amazon 
would clearly raise concerns about a possible effect on competition 
in the package delivery business. The same acquisition by ValueAct, 
regardless of whether it was a passive or active investor, would 
raise no similar concern.
---------------------------------------------------------------------------

    According to the DOJ's Competitive Impact statement (``CIS''):


[[Page 72836]]


ValueAct intended from the time it made these stock purchases 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 
influence other business decisions regardless of whether the merger was 
consummated. ValueAct executives met frequently with the top executives 
of the companies (both in person and by teleconference), and sent 
numerous e-mails to these the top executives on a variety of business 
issues. During these meetings, ValueAct identified specific business 
areas for improvement. ValueAct also made presentations to each 
company's senior executives, including presentations on post- merger 
integration. The totality of the evidence described in the Complaint 
makes clear that ValueAct could not claim the limited HSR exemption for 
passive investment.

    In other words, ValueAct did what a company's legal counsel or an 
investment bank might do, i.e., provide advice to management to 
increase the chances that a merger would be successfully completed, the 
only difference being that, rather than being paid for its advice, 
ValueAct hoped to profit through an increase in the value of its 
investment if the merger succeeded. Yet, attorneys and consultants are 
not required to make a filing with the FTC or pay a fee of $45,000 or 
more before they can speak with management. There is no good reason to 
discriminate against any stockholder, let alone a stockholder that owns 
less than 10% of a company's stock, that seeks only to profit from its 
investment by requiring it to cease trading for a period of time or to 
pay a large fee before it can exercise its right to communicate with 
management (nor, as explained below, could a law or regulation do so 
without violating the First Amendment).
    There has been no allegation that ValueAct has ever contemplated 
merging with any company in which it owned stock including Halliburton 
or Baker Hughes. Nor was ValueAct a competitor, or a significant 
supplier, service provider, or customer of either company. The FTC and 
the DOJ do not seem to understand that active and passive investors 
have the same exact objective, i.e., to see the value of their 
investment increase. When a firm like ValueAct seeks to influence 
management of a company, that is merely a means to achieve that 
objective--not a separate objective.\3\
---------------------------------------------------------------------------

    \3\ In the film, Terms of Endearment, after Emma's funeral, 
Garrett, her neighbor (played by Jack Nicholson) supportively pays 
special attention to Tommy, Emma's long-neglected son:
    Garrett: I understand you're a swimmer. Me too.
    Tommy: But you're an astronaut, right?
    Garrett: I'm an astronaut and a swimmer
    Similarly, an activist and an investor are not mutually 
exclusive things as the FTC would have it.
---------------------------------------------------------------------------

    Indeed, DOJ's Competitive Impact Statement (``CIS''), in conclusory 
and circular fashion, alleges only one actual risk of harm caused by 
ValueAct: ``ValueAct's failure to file the necessary notifications 
prevented the Department from timely reviewing ValueAct's stock 
acquisitions, which risked harming competition given that they resulted 
in ValueAct's becoming one of the largest shareholders in two direct 
competitors that were pursuing an anticompetitive merger.'' But, the 
CIS is silent about precisely how ValueAct's failure to file caused (or 
could cause) any real harm to competition or impaired the FTC or DOJ 
from determining whether to challenge the merger between Halliburton 
and Baker Hughes.\4\ If the FTC and DOJ cannot cite an example of harm 
that resulted from the acquisition of stock by an activist investor, 
that suggests that Rule 801.1(i)(1) is irrational--and regulators 
should not be perpetuating irrational regulations.
---------------------------------------------------------------------------

    \4\ According to the DOJ's announcement of the settlement: 
``ValueAct acquired substantial stakes in Halliburton and Baker 
Hughes in the midst of our antitrust review of the companies' 
proposed merger, and used its position to try to influence the 
outcome of that process and certain other business decisions,'' said 
Principal Deputy Assistant Attorney General Renata Hesse, head of 
the Justice Department's Antitrust Division. ``ValueAct was not 
entitled to avoid the HSR requirements by claiming to be a passive 
investor, while at the same time injecting itself in this manner. 
The HSR notification requirements are the backbone of the 
government's merger review process, and crucial to our ability to 
prevent anticompetitive mergers and acquisitions.''
    OK but where's the beef? As Matt Levine of Bloomberg pointed 
out: ``Hesse's last sentence, about the HSR notification being 
`crucial to our ability to prevent anticompetitive mergers and 
acquisitions,' might be true in general, but it has nothing to do 
with this case. The Justice Department could--and did--prevent the 
Baker Hughes- Halliburton merger without ever giving any thought to 
ValueAct.'' (http://www.bloomberg.com/view/articles/2016-07-13/sometimes-it-s-hard-for-owners-to-talk-to-companies)
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    In short, for 38 years the FTC has wrongly interpreted the HSR's 
``investment only'' exemption and it should stop treating activist 
investors like bogeymen. Notably, the SEC, which has extensive 
experience in regulating investors and investments, has adopted proxy 
rules that properly reflect the difference between actions intended for 
investment and non-investment purposes. Thus, SEC Rule 14a-2(b)(ix) 
excludes certain solicitations from the technical requirements of the 
proxy rules provided they are not made by or on behalf of ``[a]ny 
person who, because of a substantial interest in the subject matter of 
the solicitation, is likely to receive a benefit from a successful 
solicitation that would not be shared pro rata by all other holders of 
the same class of securities. . . .'' Similarly, SEC Rule 14a-8(i)(4) 
allows a company to exclude a shareholder proposal from its proxy 
statement ``[i]f the proposal relates to the redress of a personal 
claim or grievance against the company or any other person, or if it is 
designed to result in a benefit to you, or to further a personal 
interest, which is not shared by the other shareholders at large.''
    The FTC should apply the same distinguishing principle to revise 
Rule 801.1(i)(1) to read as follows: ``Voting securities are held or 
acquired `solely for the purpose of investment' if the person holding 
or acquiring such voting securities has no intention of receiving a 
benefit that will not be shared pro rata by all other holders of the 
same securities.'' Unlike the current rule, such a rule is consistent 
with, and faithful to, the purpose of the HSR Act.
    Additionally, Rule 801.1(i)(1) violates the First Amendment because 
it requires a stockholder to pay a sizeable fee and to temporarily 
refrain from additional stock purchases in order to exercise his or her 
right to communicate with management about the company. Worse, it is 
content-based \5\ and thus, presumptively unconstitutional.\6\
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    \5\ See Statement of the Federal Trade Commission In the Matter 
of Third Point, File No. 121-0019, (August 24, 2015), (After 
enumerating Third Point's activist oriented communications in 
connection with its investment in Yahoo! Stock, the Commission 
concluded: ``Given these actions by Third Point, we do not believe 
the investment-only exemption applies.'' In responding to the 
statement of the dissenting Commissioners, it defensively added: 
``In any event, the Commission's enforcement action does not prevent 
Third Point from engaging in shareholder advocacy that may be 
beneficial or procompetitive.'' In other words, ``We won't bring an 
enforcement action against a stockholder if we agree with it.'' That 
is a content-based regulation, plain and simple.
    \6\ To save a content-based restriction on speech, the 
government must show that the restriction is narrowly drawn to 
achieve a compelling governmental interest. Application of this 
standard almost always leads to invalidating the challenged 
restriction.
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    To conclude, the DOJ should seek a stay of its enforcement action 
until Rule 801.1(i)(1) is revised to conform to the intent of the HSR 
Act. Even though ValueAct has agreed to the proposed settlement it 
would be morally wrong for an agency that is supposed use reason and 
pursue justice to finalize a settlement of an enforcement action

[[Page 72837]]

which is based upon, and perpetuates, a regulation that is 
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unconstitutional, irrational, and inconsistent with the HSR Act.

Very truly yours,

/s/

Phillip Goldstein

[FR Doc. 2016-25525 Filed 10-20-16; 8:45 am]
 BILLING CODE 4410-11-P