United States v. VA Partners I, LLC, ValueAct Capital Master Fund, LP, and ValueAct Co-Invest International, LP; Proposed Final Judgment and Competitive Impact Statement, 48450-48461 [2016-17432]

Agencies

• Antitrust Division
• Department of Justice

[Federal Register Volume 81, Number 142 (Monday, July 25, 2016)]
[Notices]
[Pages 48450-48461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17432]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States v. VA Partners I, LLC, ValueAct Capital Master 
Fund, LP, and ValueAct Co-Invest International, LP; Proposed Final 
Judgment and Competitive Impact Statement

    Notice is hereby given pursuant to the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment, 
Stipulation, and Competitive Impact Statement have been filed with the 
United States District Court for the Northern District of California in 
United States of America v. VA Partners I, LLC, et al., Civil Action 
No. 16-cv-01672. On April 4, 2016, the United States filed a Complaint 
against VA Partners I, LLC, ValueAct Capital Master Fund, L.P. and 
ValueAct Co-Invest International, L.P. (collectively ``ValueAct'' or 
``Defendants'') alleging that ValueAct's acquisitions of voting 
securities of Halliburton Company and Baker Hughes Incorporated 
violated Section 7A of the Clayton Act, 15 U.S.C. 18a, commonly known 
as the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (the ``HSR 
Act''). The proposed Final Judgment requires the Defendants to pay a 
civil penalty of $11,000,000 and further prohibits Defendants from 
engaging in conduct of the sort alleged in the Complaint, in violation 
of the HSR Act.
    Copies of the Complaint, proposed Final Judgment, and Competitive 
Impact Statement are available for inspection on the Antitrust 
Division's Web site at https://www.justice.gov/atr and at the Office of 
the Clerk of the United States District Court for the Northern District 
of California. Copies of these materials may be obtained from the 
Antitrust Division upon request and payment of the copying fee set by 
Department of Justice regulations.
    Public comment is invited within 60 days of the date of this 
notice. Such comments, including the name of the submitter, and 
responses thereto, will be posted on the Antitrust Division's Web site, 
filed with the Court, and, under certain circumstances, published in 
the Federal Register. Comments should be directed to Kathleen S. 
O'Neill, Chief, Transportation, Energy & Agriculture Section, Antitrust 
Division, Department of Justice, 450 Fifth Street NW., Suite 8000, 
Washington, DC 20530 (telephone: 202-307-2931).
/s/--------------------------------------------------------------------

Patricia A. Brink,
Director of Civil Enforcement.

Kathleen S. O'Neill (PA Bar No. 82785)
Joseph Chandra Mazumdar (WI Bar No. 1030967)
Brian E. Hanna (VA Bar No. 80439)
Robert A. Lepore (AZ Bar No. 028137)
Tai Milder (CABN 267070)
United States Department of Justice, Antitrust Division
450 Fifth Street, NW., Suite 8000
Washington, DC 20530
Telephone: (202) 307-2931
Fax: (202) 307-2874
Email: kathleen.oneill@usdoj.gov

Brian J. Stretch (CABN 163973)
United States Attorney
[Additional counsel listed on signature page]

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, 
Valueact Capital Master

[[Page 48451]]

Fund, L.P., Valueact Co-Invest International, L.P., Defendants.

Case No.: 16-cv-01672
Judge: William Alsup
Filed: 04/04/2016

Complaint

    The United States of America, acting under the direction of the 
Attorney General of the United States, brings this civil action to 
obtain civil penalties and equitable relief against the Defendants 
(collectively, ``ValueAct'') for failing to comply with the premerger 
notification and waiting period requirements of the Hart-Scott-Rodino 
Antitrust Improvements Act of 1976 (``HSR Act''), and alleges as 
follows:

I. Introduction

    1. The Hart-Scott-Rodino Act, 15 U.S.C. 18a, is an essential part 
of modern antitrust enforcement. It requires purchasers of voting 
securities in excess of a certain value to notify the Department of 
Justice and the Federal Trade Commission and to observe a waiting 
period before consummating the transaction. These obligations extend to 
acquisitions of minority interests. One limited exemption to these 
obligations applies if the purchaser's holdings constitute less than 
ten percent of the stock of the company and the acquisition is ``solely 
for the purpose of investment''--that is, the purchaser has no 
intention of participating in the company's business decisions.
    2. ValueAct promotes itself as having a strategy of ``active, 
constructive involvement'' in the management of the companies in which 
it invests. This case concerns recent acquisitions by two ValueAct 
investment funds of over $2.5 billion of voting securities of 
Halliburton Company and Baker Hughes Incorporated. Halliburton and 
Baker Hughes are head-to-head competitors and two of the largest 
providers of oilfield products and services in the world. On November 
17, 2014, Halliburton and Baker Hughes announced their intent to merge. 
Their proposed merger is the subject of an ongoing antitrust review in 
the United States and several other countries.
    3. ValueAct began acquiring significant holdings of the two 
companies on the heels of the Halliburton/Baker Hughes merger 
announcement. From the beginning, ValueAct anticipated influencing the 
business decisions of the companies as the merger process unfolded. 
ValueAct sent memoranda to its investors outlining this strategy and 
explaining that purchasing a stake in each of these firms would allow 
it to ``be a strong advocate for the deal to close,'' which would in 
turn ``[i]ncrease probability of deal happening.'' If the deal 
encountered ``regulatory issues,'' ValueAct ``would be well positioned 
as an owner of both companies to help develop the new terms.'' ValueAct 
executives also discussed internally a back-up plan to ``sell at least 
some of Baker's pieces'' if the deal were blocked or abandoned.
    4. ValueAct's purchases of Halliburton and Baker Hughes shares did 
not qualify for the narrow exemption from the requirements of the HSR 
Act for acquisitions made solely for the purpose of investment. 
ValueAct planned from the outset to take steps to influence the 
business decisions of both companies, and met frequently with 
executives of both companies to execute those plans.
    5. These HSR Act violations allowed ValueAct to become one of the 
largest shareholders of both Halliburton and Baker Hughes, without 
providing the government its statutory right to notice and prior review 
of the stock purchases. ValueAct established these positions as 
Halliburton and Baker Hughes were being investigated for agreeing to a 
merger that threatens to substantially lessen competition in numerous 
markets. ValueAct intended to use its position as a major shareholder 
of these companies to obtain access to management, to learn information 
about the merger and the companies' strategies in private conversations 
with senior executives, to influence those executives to improve the 
chances that the merger would be completed, and to influence other 
business decisions whether or not the merger went forward.
    6. The Court should assess a civil penalty of at least $19 million 
to address ValueAct's violations of the HSR Act, and should restrain 
ValueAct from further violations.

II. Jurisdiction and Venue

    7. This Complaint is filed and these proceedings are instituted 
under Section 7A of the Clayton Act, 15 U.S.C. 18a, added by Title II 
of the HSR Act, to recover civil penalties and equitable relief for 
violations of that section.
    8. This Court has jurisdiction over the Defendants and over the 
subject matter of this action pursuant to Section 7A(g) of the Clayton 
Act, 15 U.S.C. 18a(g), and pursuant to 28 U.S.C. 1331, 1337(a), 1345 
and 1355. Each of the Defendants is engaged in commerce, or in 
activities affecting commerce, within the meaning of Section 1 of the 
Clayton Act, 15 U.S.C. 12, and Section 7A(a)(1) of the Clayton Act, 15 
U.S.C. 18a(a)(1).
    9. Venue is properly based in this District under Section 12 of the 
Clayton Act, 15 U.S.C. 22, and under 28 U.S.C. 1391(b)(2), (c)(2). Each 
of the Defendants transacts or has transacted business in this district 
and has its principal place of business here.

III. Intradistrict Assignment

    10. Assignment to the San Francisco Division is proper because this 
action arose primarily in San Francisco County. Many of the events that 
gave rise to the claims occurred in San Francisco, and Defendants' 
headquarters and principal places of business were during the relevant 
events, and continue to be, located in San Francisco.

IV. The Defendants

    11. This case arises from acquisitions of stock over several months 
by two investment funds--ValueAct Master Capital Fund, L.P. (``Master 
Fund'') and ValueAct Co-Invest International, L.P. (``Co-Invest 
Fund''). Though separate entities for purposes of the HSR Act, both 
funds have the same general partner--VA Partners I, LLC (``VA 
Partners''). Master Fund and Co-Invest Fund are organized under the 
laws of the British Virgin Islands, and VA Partners is organized under 
the laws of Delaware. Master Fund, Co-Invest Fund, and VA Partners 
(collectively, ``ValueAct'' or ``Defendants'') all have the same 
principal office and place of business in San Francisco, California.
    12. ValueAct is well known as an activist investor. In contrast to 
other large funds that focus on passive investment strategies to 
generate returns, ValueAct's Web site explains that it pursues a 
strategy of ``active, constructive involvement'' in the management of 
the companies in which it invests. The Web site further states, ``The 
goal in each investment is to work constructively with management and/
or the company's board to implement a strategy or strategies that 
maximize returns for all shareholders.''
    13. ValueAct tracks its ``activism'' in these investments by 
various metrics, such as success in changing executive compensation, 
and touts these statistics in its presentations to potential investors 
as illustrated by the following slide from ValueAct's June 2015 
presentation:

[[Page 48452]]

[GRAPHIC] [TIFF OMITTED] TN25JY16.000

    14. In presentations, ValueAct has explained that it likes 
``disciplined oligopolies'' and looks to invest in businesses in 
``[o]ligopolistic markets, high barriers-to-entry.''
    15. ValueAct funds have previously violated the HSR Act by 
acquiring voting securities without making the required notifications. 
In 2003, ValueAct Capital Partners, L.P. filed corrective notifications 
for three prior acquisitions of voting securities. ValueAct outlined 
steps it would take to ensure future compliance with the HSR Act. No 
enforcement action was taken at that time. Master Fund then failed to 
make required filings with respect to three acquisitions that it made 
in 2005. ValueAct agreed to pay a $1.1 million civil penalty to settle 
an HSR Act enforcement action based on these violations.

V. Background

A. The Hart-Scott-Rodino Antitrust Improvements Act

    16. The HSR Act requires parties to file a notification with the 
Federal Trade Commission and the Department of Justice and to observe a 
waiting period before consummating acquisitions of voting securities or 
assets that exceed certain value thresholds. These requirements give 
the antitrust enforcement agencies prior notice of, and information 
about, proposed transactions. The waiting period also provides the 
antitrust enforcement agencies with an opportunity to investigate and 
to seek an injunction to prevent the consummation of anticompetitive 
transactions.
    17. The HSR Act contains certain limited exemptions to the 
notification and waiting period requirements. The acquirer of voting 
securities has the burden of showing eligibility for an exemption. One 
such exemption applies narrowly to acquisitions made ``solely for the 
purpose of investment'' if the voting securities held do not exceed ten 
percent of the outstanding voting securities of the issuer. 15 U.S.C. 
18a(c)(9). The regulations implementing the Act explain that, to 
qualify for this exemption, the acquiring party must have ``no 
intention of participating in the formulation, determination, or 
direction of the basic business decisions of the issuer.'' 16 CFR 
801.1(i)(1).

B. ValueAct's Initial Investment Decision and Strategy

    18. After Halliburton and Baker Hughes announced their intent to 
merge on November 17, 2014, ValueAct began purchasing stock in each 
company through its Master Fund and Co-Invest Fund. ValueAct continued 
to make purchases in both companies for several months, eventually 
acquiring over $2.5 billion in securities of the two companies 
combined.
    19. As ValueAct was acquiring stock in these two companies in 
December 2014 and early January 2015, its executives were developing 
strategies to use ValueAct's ownership position to influence management 
of each firm as necessary to increase the probability of the deal being 
completed. ValueAct's Master Fund crossed the applicable HSR Act 
reporting thresholds for Baker Hughes and Halliburton on December 1 and 
December 5, 2014, respectively, and Master Fund continued to build up 
its position as its executives discussed strategy. These discussions 
culminated in the drafting of memoranda that ValueAct sent to its 
investors on January 16, 2015. These memoranda--one about Baker Hughes 
and one about Halliburton--explained ValueAct's decision to acquire 
stakes in these competitors through its Master Fund, and offered 
investors the opportunity to increase their stakes in these firms 
through additional share purchases by ValueAct's Co-Invest Fund.
    20. These memoranda and other contemporaneous documents show that 
ValueAct's most senior executives planned from the outset to play an 
active role at Halliburton and Baker Hughes. The lead ValueAct partner 
responsible for the Baker Hughes investment internally circulated a 
draft of an investor memorandum explaining that ``our activist approach 
limits our downside in the unlikely case that the merger does not 
close.'' The draft further noted that if the merger were not completed, 
ValueAct ``would likely seek to take a more active role in overseeing 
the company.'' ValueAct's CEO then

[[Page 48453]]

requested an insertion into the memorandum highlighting that ValueAct's 
``[a]ctive role'' is an additional reason to invest in both companies.
    21. Although the memoranda ultimately shared with investors watered 
down the words used to describe ValueAct's activist strategy, they 
still emphasized that purchasing a stake in Halliburton and Baker 
Hughes would ``increase probability of deal happening'' and would allow 
ValueAct to be ``a strong advocate for the deal to close.'' ValueAct 
identified this as one of three ``key considerations'' supporting its 
investment decision. A contemporaneous email among ValueAct partners 
remarked that if Halliburton's shareholders threatened to vote against 
the deal, ValueAct's ``position in HAL should be meaningful enough to 
have a substantial role in those conversations.''
    22. ValueAct also intended to help restructure the merger if it hit 
roadblocks. On December 16, 2014, ValueAct's CEO emailed his partners: 
``if we own both we can drive new terms to get the deal done if weird 
[expletive] is happening.'' ValueAct also expressed this view in its 
memos to investors: ``In the event of further fundamental dislocation 
or regulatory issues, it is possible the deal would need to be 
restructured and we believe ValueAct Capital would be well positioned 
as an owner of both companies to help develop the new terms.''
    23. In a December 2014 internal email, a ValueAct partner observed 
that ``[i]f the deal failed, the back-up plan would seem to be to sell 
at least some of Baker's pieces, and we think that we could get up to 
12x EBITDA for just 2 of BHI's businesses--artificial lift and 
chemicals.'' ValueAct's memoranda to investors noted, ``Recent 
transactions in each of those industries [specialty chemicals and 
artificial lift] suggest that these businesses are worth north of 10 
times EBITDA.'' Moreover, the Baker Hughes memorandum explained that 
there are ``numerous levers for the company to pull to drive margin 
expansion,'' and identified Baker Hughes's pressure pumping business as 
a good candidate for margin improvement.
    24. Regardless of how the merger process unfolded, ValueAct 
intended to influence the business decisions of both companies. For 
example, on December 5, 2014, the day Master Fund's holdings in 
Halliburton crossed the HSR Act threshold, a ValueAct partner wrote an 
email to ValueAct's CEO about Halliburton: ``Wonder if it would be 
possible to get the VRX [Valeant Pharmaceuticals] comp plan in from 
outside the board room?'' The CEO responded ``Yes. Good idea.'' 
(ValueAct had recently convinced management to change the executive 
compensation plan at another of its investments, Valeant 
Pharmaceuticals.)
    25. ValueAct also intended to play a role in Halliburton's efforts 
to integrate the two firms. ValueAct told its investors that its stake 
in Halliburton ``helps to further enhance our relationship with 
management and the board of directors as they work to complete the 
merger and integrate the business into Halliburton's existing 
operations.''

C. ValueAct's Efforts To Influence the Management of Both Companies

    26. Consistent with its investment strategy of ``active, 
constructive involvement,'' ValueAct established a direct line to 
senior management at both Halliburton and Baker Hughes and met with 
them frequently from the time it started acquiring stock. From December 
2014 through January 2016, ValueAct met in person or had 
teleconferences more than fifteen times with senior management of 
Halliburton or Baker Hughes, including meeting multiple times with the 
CEOs of both companies. ValueAct partners also exchanged a number of 
emails with management at both firms about the merger and the 
companies' respective operations.
    27. ValueAct reached out to Baker Hughes immediately after it began 
purchasing shares. On December 1, 2014, the day Master Fund's holdings 
crossed the HSR Act threshold for Baker Hughes, a ValueAct partner told 
a Baker Hughes executive that ValueAct was positive on the merger but 
also liked ``that 20% of [Baker Hughes's] revenue comes from non-
capital intensive business lines which could command a big multiple if 
sold.'' A few days later, ValueAct's CEO met in person with the CFO of 
Baker Hughes. According to Baker Hughes's notes of the meeting, 
ValueAct's CEO ``highlighted that it was critical that BHI continued 
focused [sic] on many of these improvement opportunities despite the 
acquisition. He specifically emphasized with graphs the largest gap/
opportunities he saw.'' With respect to the gap in Baker Hughes's North 
American margins, ValueAct's CEO stated, ``Looking to learn with BHI on 
how to close that GAP [sic].'' ValueAct's CEO also discussed other 
areas ``that he thought BHI should continue to focus on as there was a 
lot of improvement opportunity.'' According to the notes, the meeting 
ended with ValueAct's CEO ``stating that they would remain in contact 
and sharing that they plan to be large shareholders of BHI.''
    28. On January 16, 2015, ValueAct filed a Beneficial Ownership 
Report (Schedule 13D) with the Securities and Exchange Commission 
publicly disclosing its substantial stake in Baker Hughes and reporting 
that it might discuss ``competitive and strategic matters'' with Baker 
Hughes management, and might ``propos[e] changes in [Baker Hughes's] 
operations.'' Before submitting the Schedule 13D, ValueAct's CEO 
notified Halliburton's CEO of the impending filing on Baker Hughes, 
explaining that the filing ``gives us the flexibility to engage with 
the company [Baker Hughes] on all issues.'' Later the same day, 
ValueAct's CEO emailed Halliburton's CEO a copy of its investment 
memoranda for both Halliburton and Baker Hughes.
    29. By February, after ValueAct had completed its outreach to 
investors seeking capital for additional share purchases, ValueAct 
began acquiring stock in Halliburton and Baker Hughes through Co-Invest 
Fund. On March 10, 2015, Co-Invest Fund's holdings in Halliburton 
crossed the applicable HSR Act reporting threshold.
    30. Also in early March, ValueAct contacted Halliburton to offer 
assistance in advance of the shareholder vote on the merger. ValueAct 
offered Halliburton ``to speak with any of [Halliburton's] top 
shareholders about [ValueAct's] view of the merger prior to the vote.'' 
Halliburton responded that it would let ValueAct know if ValueAct's 
help became necessary.
    31. In May 2015, ValueAct further engaged with Halliburton on the 
company's plans for post-merger integration. On May 13, ValueAct met 
with Halliburton's CEO to discuss actions that Halliburton could take 
in an attempt to achieve its target merger synergies. On May 27, a 
ValueAct partner called Halliburton's Chief Integration Officer to 
recommend a firm for real estate integration services. In a subsequent 
email exchange, another ValueAct partner emphasized the need to engage 
on these issues at the executive level, and stated that Halliburton's 
plan was ``a traditional approach likely to leave value on the table.'' 
Instead, the partner identified alternative ways the real estate firm 
could work with Halliburton to help achieve the synergy goals.
    32. ValueAct also followed through on its idea for changing 
Halliburton's executive compensation plan. On July 14, 2015, ValueAct 
contacted Halliburton's CEO to schedule a meeting to discuss executive 
compensation. At

[[Page 48454]]

the meeting, which ultimately occurred in September, ValueAct delivered 
a thirty-five-page presentation detailing ValueAct's preferred 
approach, commenting on Halliburton's current plan, and proposing 
specific changes.

D. Consistent With Its Initial Plans, ValueAct Worked To Restructure 
the Merger or To Sell Parts of Baker Hughes

    33. ValueAct carefully monitored the status of the antitrust review 
process and intended to intervene with the management of each firm as 
necessary to increase the probability of the deal being completed. 
ValueAct met with Baker Hughes's CEO in May 2015 and according to 
ValueAct's notes of that meeting, Baker Hughes's CEO ``seemed pretty 
worried about anti-trust, and implied odds deal goes through 70% or 
lower in his mind.'' ValueAct then continued to push management of both 
companies to preserve the deal or, if these efforts failed, to sell off 
pieces of Baker Hughes.
    34. On August 31, 2015, ValueAct met with Baker Hughes's CEO ``to 
plant the seed to seek alternative options with other buyers if the 
deal falls through.'' In its initial investment analysis, the ValueAct 
partners had discussed selling individual Baker Hughes businesses as a 
back-up plan if the merger failed. ValueAct presented an updated 
analysis to argue this case to Baker Hughes. ValueAct also proposed 
restructuring the deal with Halliburton, suggesting that Baker Hughes 
should sell its pressure pumping, artificial lift, and specialty 
chemical businesses to Halliburton at a premium in lieu of receiving 
the merger termination fee.
    35. According to ValueAct notes from the meeting, Baker Hughes's 
CEO was ``very committed to running BHI stand-alone if the deal fails 
and did not seem to entertain the idea of shopping the business 
piecemeal to other buyers.'' The notes explain that ValueAct agreed 
that the Baker Hughes CEO's plan to ``focus on technology-based product 
lines, and grow the business organically in these areas seems like the 
right areas to focus for the stand-alone company.'' But this plan was 
not what the ValueAct executives hoped for: ``the problem is that this 
story seems like a 4-5 year period with the stock not generating a 
great return over that period.'' According to Baker Hughes's notes of 
the meeting, the ValueAct executives registered disappointment with 
Baker Hughes's CEO, and informed him that Halliburton and Baker Hughes 
were ``the only investment ValueAct had where they did not have board 
seats.''
    36. On September 18, 2015, ValueAct pitched its restructuring plan 
to Halliburton's CEO, advocating that Halliburton pursue selective 
acquisitions of Baker Hughes's production chemicals and artificial lift 
businesses. According to Halliburton's notes of the call, ValueAct 
suggested that Halliburton should offer a substantial sum to acquire 
these businesses and settle the $3.5 billion merger break-up fee at the 
same time.
    37. During this conversation with the CEO of Halliburton, ValueAct 
shared Baker Hughes's plans if the merger could not close. According to 
Halliburton's notes of the call, ValueAct stated that if the merger 
could not be consummated, Baker Hughes's CEO intended to ``run the 
company like he did before.'' Halliburton's CEO then asked whether 
Baker Hughes's CEO was ``listening to VA.'' A ValueAct partner replied 
that Baker Hughes's CEO ``realize [sic] can go to his board directly.'' 
ValueAct also asked Halliburton's CEO if there was ``anything we 
[ValueAct] can do to be helpful,'' and explicitly offered to ``apply 
pressure to BHI CEO regarding unhappiness if he continues to run co. if 
deal does not go through.'' In short, ValueAct offered to use its 
position as a shareholder to pressure Baker Hughes's management to 
change its business strategy in ways that could affect Baker Hughes's 
competitive future.
    38. ValueAct and Halliburton's willingness to discuss the 
competitive future of Baker Hughes in the absence of a merger is 
further confirmed by notes contained in ValueAct's files. These notes 
list ``3 options that Lazard [presumably Halliburton's CEO, David 
Lesar] discussed'' with respect to Baker Hughes. One of those options 
was ``Cripple a competitor.''
    39. On November 5, 2015, ValueAct made a detailed fifty-five page 
presentation to Baker Hughes's CEO proposing operational and strategic 
changes to the company. The same day, ValueAct lobbied Halliburton's 
senior management to pursue alternative ways to get the deal done.

VI. Violations Alleged

    40. Plaintiff alleges and incorporates paragraphs 1 through 39 as 
if set forth fully herein.
    41. The HSR Act provides that any person, or any officer, director, 
or partner thereof, who fails to comply with any provision of the HSR 
Act is liable to the United States for a civil penalty for each day 
during which such person is in violation. Master Fund and Co-Invest 
Fund are each considered a separate person under the Act and are each 
obligated to comply with its requirements.

A. Count 1: Master Fund's Acquisition of Halliburton

    42. The HSR Act and applicable implementing regulations required 
that Master Fund file a notification and report form with the antitrust 
enforcement agencies and observe a waiting period before acquiring any 
voting securities in Halliburton that would result in Master Fund 
holding an aggregate total amount of voting securities in excess of the 
$50 million threshold, as adjusted ($75.9 million in December 2015, and 
$76.3 million beginning in February 2016).
    43. On or about December 4, 2014, Master Fund began purchasing 
Halliburton voting securities. On or about December 5, 2014, Master 
Fund's aggregate value of Halliburton voting securities exceeded the 
$75.9 million threshold. Master Fund continued to purchase Halliburton 
voting securities until June 30, 2015, by which time Master Fund's 
aggregate value of Halliburton voting securities exceeded $1.4 billion.
    44. Master Fund failed to file the required notification or to 
observe the required waiting period.
    45. On or about January 27, 2016, Master Fund had sold a sufficient 
quantity of voting securities of Halliburton such that its holdings 
were no longer in excess of $76.3 million.
    46. Master Fund was in violation of the requirements of the HSR Act 
related to its purchase of Halliburton voting securities each day 
beginning December 5, 2014, and ending on or about January 27, 2016.

B. Count 2: Co-Invest Fund's Acquisition of Halliburton

    47. The HSR Act and applicable implementing regulations required 
that Co-Invest Fund file a notification and report form with the 
antitrust enforcement agencies and observe a waiting period before 
acquiring any voting securities in Halliburton that would result in Co-
Invest Fund holding an aggregate total amount of voting securities in 
excess of the $50 million threshold, as adjusted ($76.3 million 
beginning in February 2016).
    48. On or about February 24, 2015, Co-Invest Fund began purchasing 
Halliburton voting securities. On or about March 10, 2015, Co-Invest 
Fund's aggregate value of Halliburton voting securities exceeded the 
$76.3 million threshold. Co-Invest Fund continued to purchase 
Halliburton voting securities until March 12, 2015, by which time Co-
Invest Fund's aggregate value of

[[Page 48455]]

Halliburton voting securities exceeded $138 million.
    49. Co-Invest Fund failed to file the required notification or 
observe the required waiting period.
    50. On or about January 22, 2016, Co-Invest Fund had sold a 
sufficient quantity of voting securities of Halliburton such that its 
holdings were no longer in excess of $76.3 million.
    51. Co-Invest Fund was in violation of the requirements of the HSR 
Act related to its purchase of Halliburton voting securities each day 
beginning March 10, 2015, and ending on or about January 22, 2016.

C. Count 3: Master Fund's Acquisition of Baker Hughes

    52. The HSR Act and applicable implementing regulations required 
that Master Fund file a notification and report form with the antitrust 
enforcement agencies and observe a waiting period before acquiring any 
voting securities in Baker Hughes that would result in Master Fund 
holding an aggregate total amount of voting securities in excess of the 
$50 million threshold, as adjusted ($75.9 million in December 2015, and 
$76.3 million beginning in February 2016).
    53. On or about November 28, 2014, Master Fund began purchasing 
Baker Hughes voting securities. On or about December 1, 2014, Master 
Fund's aggregate value of Baker Hughes voting securities exceeded the 
$75.9 million threshold. Master Fund continued to purchase Baker Hughes 
voting securities until January 15, 2015, by which time Master Fund's 
aggregate value of Baker Hughes voting securities exceeded $1.2 
billion.
    54. Master Fund failed to file the required notification or to 
observe the required waiting period.
    55. Master Fund was in violation of the requirements of the HSR Act 
related to its purchase of Baker Hughes voting securities each day 
beginning on December 1, 2014, and remains in violation of the HSR Act 
to the present.

VII. Request For Relief

Wherefore, Plaintiff requests:

    (a) That the Court adjudge and decree that Defendant Master Fund's 
acquisitions of voting securities of Halliburton, without having filed 
a notification and report form and observing a waiting period, violated 
the HSR Act;
    (b) That the Court adjudge and decree that Defendant Co-Invest 
Fund's acquisitions of voting securities of Halliburton, without having 
filed a notification and report form and observing a waiting period, 
violated the HSR Act;
    (c) That the Court adjudge and decree that Defendant Master Fund's 
acquisitions of voting securities of Baker Hughes, without having filed 
a notification and report form and observing a waiting period, violated 
the HSR Act;
    (d) That the Court order Defendants to pay to the United States an 
appropriate civil penalty as provided by the HSR Act, 15 U.S.C. Sec.  
18a(g)(1), the Debt Collection Improvement Act of 1996, Pub. L. 104-
134, Sec.  31001(s) (amending the Federal Civil Penalties Inflation 
Adjustment Act of 1990, 28 U.S.C. Sec.  2461 note), and Federal Trade 
Commission Rule 1.98, 16 CFR Sec.  1.98, 74 Fed. Reg. 858 (Jan. 9, 
2009);
    (e) That the Court enjoin Defendants from any future violations of 
the HSR Act;
    (f) That the Court order such other and further relief as the Court 
may deem just and proper; and,
    (g) That the Court award the Plaintiff its costs of this suit.

    Dated:

Respectfully submitted,

For the Plaintiff United States of America:

/s/--------------------------------------------------------------------

William J. Baer,
Assistant Attorney General.

/s/--------------------------------------------------------------------

David I. Gelfand,
Deputy Assistant Attorney General.

/s/--------------------------------------------------------------------

Patricia A. Brink (Cabn 144499),
Director of Civil Enforcement.

/s/--------------------------------------------------------------------

Kathleen S. O'Neill,
Chief, Transportation, Energy, and 
Agriculture Section.

/s/--------------------------------------------------------------------

Robert A. Lepore,
Assistant Chief, Transportation, Energy, and 
Agriculture Section.

/s/--------------------------------------------------------------------

Joseph Chandra Mazumdar, Brian E. Hanna, Tai Milder, Trial 
Attorneys.

United States Department of Justice
Antitrust Division
450 Fifth Street, NW
Suite 8000
Washington, DC 20530
Telephone: (202) 307-2931
kathleen.oneill@usdoj.gov

/s/--------------------------------------------------------------------

Brian J. Stretch (Cabn 163973), United States Attorney.
By Jonathan U. Lee (Cabn 148792),
Acting Chief, Civil Division 
Assistant U.S. Attorney Office of the United States Attorney
Northern District of California
450 Golden Gate Avenue
San Francisco, CA 94102
Telephone: (415) 436-7200
Email: jonathan.lee@usdoj.gov

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 Avenue
Box 36046, room 10-0101
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
Judge: William Alsup
Filed: 07/12/2016

COMPETITIVE IMPACT STATEMENT

    The United States, pursuant to the Antitrust Procedures and 
Penalties Act (``APPA''), 15 U.S.C. Sec.  16(b)-(h), files this 
Competitive Impact Statement to set forth the information necessary to 
enable the Court and the public to evaluate the proposed Final Judgment 
that would terminate this civil antitrust proceeding.

I. Nature and Purpose of this Proceeding

    On April 4, 2016, the United States filed a 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''), 
related to Master Fund's and Co-Invest Fund's acquisition of voting 
securities of Halliburton Co. (``Halliburton'') and Baker Hughes 
Incorporated (``Baker Hughes'') in 2014 and 2015.
    The Complaint alleges that ValueAct violated Section 7A of the 
Clayton Act, 15 U.S.C. 18a, commonly known as the Hart-Scott-Rodino 
Antitrust Improvements Act of 1976 (the ``HSR Act''). The HSR Act 
states that ``no person shall acquire, directly or

[[Page 48456]]

indirectly, any voting securities of any person'' exceeding certain 
thresholds until that person has filed pre-acquisition notification and 
report forms with the Department of Justice and the Federal Trade 
Commission (collectively, the ``agencies'') and the post-filing waiting 
period has expired. Id. 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 transactions before they are 
consummated.
    This case arises because ValueAct, an investment manager that is 
well known for actively involving itself in the management of the 
companies in which it invests, made substantial purchases of stock in 
two direct competitors with the intent to participate in those 
companies' business decisions, without 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. 
After the United States challenged that merger on April 6, 2016, 
Halliburton and Baker Hughes abandoned their anticompetitive plan to 
merge. ValueAct's failure to comply with the HSR Act prevented the 
agencies from reviewing ValueAct's acquisitions in advance, 
compromising the agencies' ability to protect competition and 
consumers.
    The Complaint alleges that the Defendants could not rely on the HSR 
Act's limited exemption for acquisitions made ``solely for the purpose 
of investment'' (the ``investment-only exemption''). 15 U.S.C. 
18a(c)(9) 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.'' 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 CFR Sec.  
801.1(i)(1). As explained in the Complaint, ValueAct did not qualify 
for the investment-only exemption because it intended to participate in 
the business decisions of both companies.
    The Complaint seeks a ruling that the Defendants' acquisitions of 
voting securities of Halliburton and Baker Hughes, without filing and 
observing the mandatory waiting period, violated the HSR Act. The 
Complaint asks the Court to issue an appropriate injunction and order 
the Defendants to pay an appropriate civil penalty to the United 
States.
    On July 12, 2016, the United States filed a Stipulation and 
proposed Final Judgment that eliminates the need for a trial in this 
case. The proposed Final Judgment is designed to prevent and restrain 
Defendants' HSR Act violations. Under the proposed Final Judgment, 
which is explained more fully below, Defendants must pay a civil 
penalty of $11 million. Further, Defendants are prohibited from 
engaging in future conduct of the sort alleged in the Complaint.
    The United States and the Defendants have stipulated that the 
proposed Final Judgment may be entered after compliance with the APPA, 
unless the United States first withdraws its consent. Entry of the 
proposed Final Judgment would terminate this case, except that the 
Court would retain jurisdiction to construe, modify, or enforce the 
provisions of the proposed Final Judgment and punish violations 
thereof.

II. Description of the Events Giving Rise to the Alleged Violations of 
the Antitrust Laws

A. The Defendants and the Acquisitions of Halliburton and Baker Hughes 
Voting Securities

    Master Fund and Co-Invest Fund are offshore funds organized under 
the laws of the British Virgin Islands, with each having a principal 
place of business in San Francisco, California. VA Partners I is the 
general partner of the Defendant Funds. VA Partners I is a limited 
liability company organized under the laws of Delaware, with its 
principal place of business in San Francisco, California.
    ValueAct is well known as an activist investor. ValueAct's website 
explains that it pursues a strategy of ``active, constructive 
involvement'' in the management of the companies in which it invests. 
The website further elaborates: ``[t]he goal in each investment is to 
work constructively with management and/or the company's board to 
implement a strategy or strategies that maximize returns for all 
shareholders.''
    ValueAct entities have previously violated the HSR Act by acquiring 
voting securities without making the required notifications. In 2003, 
ValueAct Capital Partners, L.P. filed corrective notifications for 
three prior acquisitions of voting securities. ValueAct outlined steps 
it would take to ensure future compliance with the HSR Act. No 
enforcement action was taken at that time. Master Fund then failed to 
make required filings with respect to three acquisitions that it made 
in 2005. ValueAct Capital Partners, L.P. agreed to pay a $1.1 million 
civil penalty to settle an HSR Act enforcement action based on these 
violations.

B. The Defendants' Unlawful Conduct

    The Complaint in this case alleges that ValueAct violated the HSR 
Act in connection with acquisitions of voting securities of Halliburton 
and Baker Hughes in 2014 and 2015. In making these acquisitions, 
ValueAct improperly relied on the limited investment-only exemption 
from HSR filing requirements despite the fact that ValueAct intended 
from the outset to play an ``active role'' at both Halliburton and 
Baker Hughes. 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.
    The Complaint alleges that ValueAct committed three distinct 
violations of the HSR Act. First, Defendant Master Fund acquired voting 
securities of Halliburton in excess of the HSR Act's thresholds without 
complying with the notification and waiting period requirements. 
Second, Defendant Co-Invest Fund acquired voting securities of 
Halliburton in excess of the HSR Act's thresholds without complying 
with the notification and waiting period requirements. Third, Defendant 
Master Fund acquired voting securities of Baker Hughes in excess of the 
HSR Act's thresholds without complying with the notification and 
waiting period requirements.
    As described in more detail in the Complaint, 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

[[Page 48457]]

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 emails 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.

III. Explanation of the Proposed Final Judgment

    The proposed Final Judgment contains injunctive relief and requires 
payment of civil penalties, which are designed to prevent future 
violations of the HSR Act. The proposed Final Judgment sets forth 
prohibited conduct, and provides access and inspection procedures to 
enable the United States to determine and ensure compliance with the 
proposed Final Judgment.

A. Prohibited Conduct

    Section IV of the proposed Final Judgment is designed to prevent 
future HSR violations of the sort alleged in the Complaint. Under this 
provision, the Defendants may not rely on the HSR Act's investment-only 
exemption if they intend to take, or their investment strategy 
identifies circumstances in which they may take, the following actions: 
(1) proposing a merger, acquisition, or sale to which the issuer of the 
acquired voting securities is a party; (2) proposing to another person 
in which the Defendant has an ownership stake the potential terms for a 
merger, acquisition, or sale between the person and the issuer; (3) 
proposing new or modified terms for a merger or acquisition to which 
the issuer is a party; (4) proposing an alternative to a merger or 
acquisition to which the issuer is a party, either before consummation 
or upon abandonment; (5) proposing changes to the issuer's corporate 
structure that require shareholder approval; or (6) proposing changes 
to the issuer's strategies regarding pricing, production capacity, or 
production output of the issuer's products and services.
    The HSR Act exempts acquisitions made ``solely for the purpose of 
investment.'' 15 U.S.C. 18a(c)(9) (emphasis added). As explained in the 
regulations implementing the HSR Act, an acquirer must have ``no 
intention of participating in the formulation, determination, or 
direction of the basic business decisions of the issuer'' to qualify 
for the investment-only exemption. 16 CFR Sec.  801.1(i)(1) (emphasis 
added).
    ValueAct did not have a passive intent when it acquired stock in 
Halliburton and Baker Hughes. The proposed merger of these competitors 
was central to ValueAct's investment strategy. As described in the 
Complaint, ValueAct intended from the outset to use its ownership stake 
in each firm to influence the firm's management, as necessary, to 
increase the probability of the merger being consummated or propose 
alternatives if it could not be completed. An investor who is 
considering influencing basic business decisions--such as merger and 
acquisition strategy, corporate restructuring, and other competitively 
significant business strategies (e.g., relating to price, production 
capacity, or production output)--is not passive. Therefore, ValueAct 
was not entitled to rely on the investment-only exemption.
    The prohibited conduct provision of the proposed Final Judgment is 
aimed at deterring future HSR violations of the sort alleged in the 
Complaint, in particular, those that pose the greatest threat to 
competition. 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 of the HSR Act. Other actions, 
including but not limited to those described in the Statement of Basis 
and Purpose accompanying the HSR Rules to implement the Act, may 
disqualify an acquirer from relying on the investment-only exemption. 
Premerger Notification: Reporting and Waiting Period Requirements, 43 
Fed. Reg. 33,450, 34,465 (July 31, 1978) (identifying conduct that may 
be inconsistent with the investment-only exemption).
    In light of ValueAct's conduct at issue in this case and its past 
violations, this injunction is an appropriate means to ensure that 
ValueAct is deterred from violating the HSR Act again. If ValueAct does 
violate any of the provisions of the proposed Final Judgment, the Court 
may impose additional sanctions for contempt, if appropriate.

B. Compliance

    Section V of the proposed Final Judgment sets forth required 
compliance procedures. Section V requires the Defendants to designate a 
compliance officer, who is required to distribute a copy of the Final 
Judgment to each person who has responsibility for, or authority over, 
each Defendant's acquisitions of voting securities. The compliance 
officer is also required to obtain a certification form from each such 
person verifying that he or she has received a copy of the Final 
Judgment and understands his or her obligations.
    To help ensure that the Defendants comply with the Final Judgment, 
Section VI grants duly authorized representatives of the United States 
Department of Justice (``DOJ'') access, upon reasonable notice, to each 
Defendant's records and documents relating to matters contained in the 
Final Judgment. The Defendants must also make their personnel available 
for interviews or depositions regarding such matters. In addition, the 
Defendants must, upon written request from duly authorized 
representatives of the Assistant Attorney General in charge of the 
DOJ's Antitrust Division, submit written reports relating to matters 
contained in the Final Judgment.

C. Civil Penalties

    The HSR Act currently provides a maximum civil penalty of $16,000 
per day for each day a defendant is in violation of the Act. This 
maximum penalty will be adjusted to $40,000 per day as of August 1, 
2016, pursuant to the Federal Civil Penalties Inflation Adjustment Act 
Improvements Act of 2015, Public Law 114-74 Sec.  701 (further amending 
the Federal Civil Penalties Inflation Adjustment Act of 1990), and 
Federal Trade Commission Rule 1.98, 16 CFR 1.98, 81 Fed. Reg. 42,476 
(June 30, 2016). The proposed Final Judgment imposes an $11 million 
civil penalty for the Defendants' failure to comply with the notice and 
waiting requirements of the HSR Act.
    The Department considered several factors in assessing what penalty 
would be appropriate in this case. First, the facts as described in the 
Complaint make clear that ValueAct intended to take an active role in 
the business decisions of both Halliburton and Baker Hughes, and 
ValueAct should have recognized its filing obligation. To the extent 
that ValueAct had any doubt about its obligations, it could have sought 
the advice of the Federal Trade Commission's Premerger Notification 
Office, but did not do so. Second, as discussed above, ValueAct has 
previously violated the HSR Act six times. Finally, although the HSR 
Act is a strict liability statute, the Department considers it an 
aggravating factor that the transactions at issue raised substantive 
competitive concerns. ValueAct became one of the largest shareholders 
of two direct competitors,

[[Page 48458]]

and proceeded to actively and simultaneously participate in the 
management of each company. Moreover, ValueAct established these 
positions as Halliburton and Baker Hughes were being investigated for 
agreeing to a merger that threatened to substantially lessen 
competition in over twenty product markets in the United States, and 
planned to intervene to influence the probability that the merger would 
be completed or to determine the companies' courses if it was not. As a 
result, the violations prejudiced the Department's ability to enforce 
the antitrust laws.
    Together, these factors call for a substantial penalty. However, 
the Department did adjust the penalty downward from the maximum because 
the Defendants are willing to resolve the matter by consent decree and 
avoid prolonged litigation. Despite the downward adjustment, the 
penalty in this case will be the largest penalty ever imposed for a 
violation of the HSR Act. Such a penalty appropriately reflects the 
gravity of the conduct at issue, and will deter ValueAct and other 
companies from violating the HSR Act.

IV. Remedies Available to Potential Private Litigants

    There is no private antitrust action for HSR Act violations; 
therefore, entry of the proposed Final Judgment will neither impair nor 
assist the bringing of any private antitrust action.

V. Procedures Available for Modification of the Proposed Final Judgment

    The United States and Defendant have stipulated that the proposed 
Final Judgment may be entered by this Court after compliance with the 
provisions of the APPA, provided that the United States has not 
withdrawn its consent. The APPA conditions entry of the decree upon 
this Court's determination that the proposed Final Judgment is in the 
public interest.
    The APPA provides a period of at least sixty (60) days preceding 
the effective date of the proposed Final Judgment within which any 
person may submit to the United States written comments regarding the 
proposed Final Judgment. Any person who wishes to comment should do so 
within sixty (60) days of the date of publication of this Competitive 
Impact Statement in the Federal Register, or the last date of 
publication in a newspaper of the summary of this Competitive Impact 
Statement, whichever is later. All comments received during this period 
will be considered by the United States, which remains free to withdraw 
its consent to the proposed Final Judgment at any time prior to entry. 
The comments and the response of the United States will be filed with 
the Court. In addition, comments will be posted on the U.S. Department 
of Justice, Antitrust Division's internet website and, under certain 
circumstances, published in the Federal Register. Written comments 
should be submitted to:

Kathleen S. O'Neill
Chief, Transportation, Energy and Agriculture Section
Antitrust Division
United States Department of Justice
450 Fifth Street, NW, Suite 8000
Washington, DC 20530
Email: kathleen.oneill@usdoj.gov

    The proposed Final Judgment provides that this Court retains 
jurisdiction over this action, and the parties may apply to this Court 
for any order necessary or appropriate for the modification, 
interpretation, or enforcement of the Final Judgment.

VI. Alternatives to the Proposed Final Judgment

    As an alternative to the proposed Final Judgment, the United States 
considered pursuing a full trial on the merits against the Defendants. 
The United States is satisfied, however, that the proposed relief is an 
appropriate remedy in this matter. Given the facts of this case, the 
United States is satisfied that the injunction coupled with the 
proposed civil penalty is sufficient to address the violations alleged 
in the Complaint and to deter violations by similarly situated entities 
in the future, without the time, expense, and uncertainty of a full 
trial on the merits.

VII. Standard of Review Under the APPA for the Proposed Final Judgment

    The APPA requires that remedies contained in 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. 16(e)(1). In making that determination, the 
court, in accordance with the statute as amended in 2004, 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. 16(e)(1)(A) & (B). In considering these statutory factors, 
the court's inquiry is necessarily a limited one, as the government is 
entitled to ``broad discretion to settle with the defendant within the 
reaches of the public interest.'' United States v. Microsoft Corp., 56 
F.3d 1448, 1461 (D.C. Cir. 1995); see generally 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. U.S. 
Airways Group, Inc., 38 F. Supp. 3d 69, 75 (D.D.C. 2014) (noting the 
court has broad discretion of the adequacy of the relief at issue); 
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'').\1\
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

    As the United States Court of Appeals for the District of Columbia 
Circuit has held, 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.,

[[Page 48459]]

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).\2\ 
In determining whether a proposed settlement is in the public interest, 
a district court ``must accord deference to the government's 
predictions about the efficacy of its remedies, and may not require 
that the remedies perfectly match the alleged violations.'' SBC 
Commc'ns, 489 F. Supp. 2d at 17; see also U.S. Airways, 38 F. Supp. 3d 
at 75 (noting that a court should not reject the proposed remedies 
because it believes others are preferable); Microsoft, 56 F.3d at 1461 
(noting the need for courts to be ``deferential to the government's 
predictions as to the effect of the proposed remedies''); United States 
v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) 
(noting that the court should grant due respect to the United States' 
prediction as to the effect of proposed remedies, its perception of the 
market structure, and its views of the nature of the case).
---------------------------------------------------------------------------

    \2\ Cf. BNS, 858 F.2d at 464 (holding that the court's 
``ultimate authority under the [APPA] is limited to approving or 
disapproving the consent decree''); United States v. Gillette Co., 
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the 
court is constrained to ``look at the overall picture not 
hypercritically, nor with a microscope, but with an artist's 
reducing glass''). See generally Microsoft, 56 F.3d at 1461 
(discussing 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' '').
---------------------------------------------------------------------------

    Courts have greater flexibility in approving proposed consent 
decrees than in crafting their own decrees following a finding of 
liability in a litigated matter. ``[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 public interest.' '' United States v. Am. Tel. & Tel. Co., 
552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United 
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975), aff'd 
sub nom. Maryland v. United States, 460 U.S. 1001 (1983)); see also 
U.S. Airways, 38 F. Supp. 3d at 76 (noting that room must be made for 
the government to grant concessions in the negotiation process for 
settlements (citing Microsoft, 56 F.3d at 1461)); 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). To meet this standard, 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.
    Moreover, the court's role under the APPA is limited to reviewing 
the remedy in relationship to the violations that the United States has 
alleged in its Complaint, and does not authorize the court to 
``construct [its] own hypothetical case and then evaluate the decree 
against that case.'' Microsoft, 56 F.3d at 1459; see also U.S. Airways, 
38 F. Supp. 3d at 75 (noting that the court must simply determine 
whether there is a factual foundation for the government's decisions 
such that its conclusions regarding the proposed settlements are 
reasonable); InBev, 2009 U.S. Dist. LEXIS 84787, at *20 (stating that 
``the `public interest' is not to be measured by comparing the 
violations alleged in the complaint against those the court believes 
could have, or even should have, been alleged''). Because the ``court's 
authority to review the decree depends entirely on the government's 
exercising its prosecutorial discretion by bringing a case in the first 
place,'' it follows that ``the court is only authorized to review the 
decree itself,'' and not to ``effectively redraft the complaint'' to 
inquire into other matters that the United States did not pursue. 
Microsoft, 56 F.3d at 1459-60. As the United States District Court for 
the District of Columbia recently confirmed in SBC Communications, 
courts ``cannot look beyond the complaint in making the public interest 
determination unless the complaint is drafted so narrowly as to make a 
mockery of judicial power.'' 489 F. Supp. 2d at 15.
    In its 2004 amendments, Congress made clear its intent to preserve 
the practical benefits of utilizing consent decrees in antitrust 
enforcement, 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); see also U.S. Airways, 38 F. 
Supp. 3d at 76 (indicating that a court is not required to hold an 
evidentiary hearing or to permit intervenors as part of its review 
under the Tunney Act). The language wrote into the statute what 
Congress intended when it enacted the Tunney Act in 1974, as Senator 
Tunney explained: ``[t]he court is nowhere compelled to go to trial or 
to engage in extended proceedings which might have the effect of 
vitiating the benefits of prompt and less costly settlement through the 
consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of 
Sen. Tunney). Rather, 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.\3\ A court can make its public 
interest determination based on the competitive impact statement and 
response to public comments alone. U.S. Airways, 38 F. Supp. 3d at 76.
---------------------------------------------------------------------------

    \3\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17 
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the 
court to make its public interest determination on the basis of the 
competitive impact statement and response to comments alone''); 
United States v. Mid-Am. Dairymen, Inc., No. 73-CV-681-W-1, 1977-1 
Trade Cas. (CCH) ] 61,508, at 71,980, *22 (W.D. Mo. 1977) (``Absent 
a showing of corrupt failure of the government to discharge its 
duty, the Court, in making its public interest finding, should . . . 
carefully consider the explanations of the government in the 
competitive impact statement and its responses to comments in order 
to determine whether those explanations are reasonable under the 
circumstances.''); S. Rep. No. 93-298, at 6 (1973) (``Where the 
public interest can be meaningfully evaluated simply on the basis of 
briefs and oral arguments, that is the approach that should be 
utilized.'').
---------------------------------------------------------------------------

VIII. Determinative Documents

    There are no determinative materials or documents within the 
meaning of the APPA that were considered by the United States in 
formulating the proposed Final Judgment.

    Date: July 12, 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

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

[[Page 48460]]

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
Box 36046, room 10-0101
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
Judge: William Alsup
Filed: 07/12/2016

[PROPOSED] FINAL JUDGMENT

    WHEREAS, Plaintiff, the United States of America (``United 
States'') filed its Complaint on April 4, 2016, alleging that VA 
Partners I, LLC, ValueAct Capital Master Fund, L.P., and ValueAct Co-
Invest International, L.P. (collectively, ``ValueAct'' or 
``Defendants'') violated 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''), and Plaintiff and Defendants, by their 
respective attorneys, having consented to the entry of this Final 
Judgment without trial or adjudication of any issue of fact or law, and 
without this Final Judgment constituting any evidence against, or an 
admission by, the Defendants with respect to any such issue of fact or 
law;
    AND WHEREAS Defendants agree to be bound by the provisions of this 
Final Judgment pending its approval by the Court;
    NOW, THEREFORE, before any testimony is taken, and without trial or 
adjudication of any issue of fact or law, and upon consent of the 
parties, it is hereby ORDERED, ADJUDGED, AND DECREED:

I. Jurisdiction

    The Court has jurisdiction over the subject matter of this action. 
The Defendants consent solely for the purpose of this action and the 
entry of this Final Judgment that this Court has jurisdiction over each 
of the parties to this action and that the Complaint states a claim 
upon which relief can be granted against the Defendants under Section 
7A of the Clayton Act, 15 U.S.C. Sec.  18a.

II. Definitions

    As used in this Final Judgment:
    (A) ``Covered Acquisition'' means an acquisition of Voting 
Securities of an Issuer that is subject to the reporting and waiting 
requirements of the HSR Act, 15 U.S.C. Sec.  18a, and that is not 
otherwise exempt from the requirements of the HSR Act, but for which 
Defendant have not reported under the HSR Act, in reliance on the 
exemption pursuant to Section (c)(9) of the HSR Act, 15 U.S.C. Sec.  
18a(c)(9).
    (B) ``Issuer'' means a legal entity that issues Voting Securities.
    (C) ``Officer or Director'' means (1) the members of the Issuer's 
board of directors; (2) those persons whose positions are designated by 
the bylaws or articles of incorporation of the Issuer, its parent, or 
any subsidiary of the Issuer; or (3) those persons whose positions are 
appointed by the board of the Issuer, its parent, or any subsidiary of 
the Issuer. If there are no persons who meet the criteria listed above, 
``Officer or Director'' means those individuals whose capacities and 
duties are similar to the officers or directors of a corporation, 
including deciding whether to make the acquisition or sale of a 
business. Notwithstanding the foregoing, Officer or Director shall not 
include any persons whose job responsibilities primarily relate to 
investor relations.
    (D) The terms ``Person(s)'' and ``Voting Securities'' have the 
meanings as defined in the HSR Act and Regulations promulgated 
thereunder, 16 CFR Sec. Sec.  801-803.
    (E) ``Propose'' means communicating a plan of action for 
consideration, discussion or adoption.
    (F) ``ValueAct Partners I, LLC'' means Defendant ValueAct Partners 
I, LLC, a limited liability company and general partner of Defendants 
ValueAct Master Capital Fund, L.P. and ValueAct Co-Invest 
International, L.P., organized under the laws of Delaware, with its 
principal place of business at One Letterman Drive, San Francisco, CA 
94129.
    (G) ``ValueAct Master Capital Fund, L.P.'' means Defendant ValueAct 
Master Capital Fund, L.P., an offshore fund organized under the laws of 
the British Virgin Islands, with its principal place of business at One 
Letterman Drive, San Francisco, CA 94129.
    (H) ``ValueAct Co-Invest International, L.P.'' means Defendant 
ValueAct Co-Invest International, L.P., an offshore fund organized 
under the laws of the British Virgin Islands, with its principal place 
of business at One Letterman Drive, San Francisco, CA 94129.

 III. Applicability

    This Final Judgment applies to all Defendants, including each of 
their directors, officers, general partners, managers, agents, parents, 
subsidiaries, successors, and assigns, all in their capacities as such, 
and to all other Persons and entities that are in active concert or 
participation with any of the foregoing with respect to conduct 
prohibited in Section IV when the relevant Persons or entities have 
received actual notice of this Final Judgment by personal service or 
otherwise.

IV. Prohibited Conduct

    Each Defendant is enjoined from making a Covered Acquisition, 
without filing and observing the waiting period as required by the HSR 
Act, 15 U.S.C. Sec.  18a, if at the time of such Covered Acquisition 
(i) the Defendant intends to take any of the below actions, or (ii) the 
Defendant's investment strategy specific to such Covered Acquisition 
identifies circumstances in which the Defendant may take any of the 
below actions:
    (A) Propose to an Officer or Director of the Issuer that the Issuer 
merge with, acquire, or sell itself to another Person;
    (B) Propose to an Officer or Director of any other Person in which 
the Defendant owns Voting Securities or an equity interest the 
potential terms on which that Person might merge with, acquire, or sell 
itself to the Issuer;
    (C) Propose to an Officer or Director of the Issuer new or modified 
terms for any publicly announced merger or acquisition to which the 
Issuer is a party;
    (D) Propose to an Officer or Director of the Issuer an alternative 
to a publicly announced merger or acquisition to which the Issuer is a 
party, either before consummation of the publicly announced merger or 
acquisition or upon its abandonment;
    (E) Propose to an Officer or Director of the Issuer changes to the 
Issuer's corporate structure that require shareholder approval; or,
    (F) Propose to an Officer or Director of the Issuer changes to the 
Issuer's strategies regarding the pricing of the Issuer's product(s) or 
service(s), its production capacity, or its production output.

 V. Compliance

    (A) Defendants shall maintain a compliance program that shall 
include designating, within thirty (30) days of the entry of this Final 
Judgment, a Compliance Officer with responsibility for achieving 
compliance with this Final Judgment. The Compliance Officer

[[Page 48461]]

shall, on a continuing basis, supervise the review of current and 
proposed activities to ensure compliance with this Final Judgment. The 
Compliance Officer shall be responsible for accomplishing the following 
activities:
    (1) Distributing, within thirty (30) days of the entry of this 
Final Judgment, a copy of this Final Judgment to any Person who has 
responsibility for or authority over acquisitions by Defendants of 
Voting Securities;
    (2) Distributing, within thirty (30) days of succession, a copy of 
this Final Judgment to any Person who succeeds to a position described 
in Section V.A.1; and
    (3) Obtaining within sixty (60) days from the entry of this Final 
Judgment, and once within each calendar year after the year in which 
this Final Judgment is entered during the term of this Final Judgment, 
and retaining for the term of this Final Judgment, a written 
certification from each Person designated in Sections V.A.1 and V.A.2 
that he or she: (a) has received, read, understands, and agrees to 
abide by the terms of this Final Judgment; (b) understands that failure 
to comply with this Final Judgment may result in conviction for 
criminal contempt of court; and (c) is not aware of any violation of 
the Final Judgment.
    (B) Within sixty (60) days of the entry of this Final Judgment, 
Defendants shall certify to Plaintiff that they have (1) designated a 
Compliance Officer, specifying his or her name, business address and 
telephone number; and (2) distributed the Final Judgment in accordance 
with Section V.A.1.
    (C) If any of Defendants' directors or officers or the Compliance 
Officer learns of any violation of this Final Judgment, Defendants 
shall within ten (10) business days make a corrective filing under the 
HSR Act.

VI. Plaintiff's Access and Inspection

    (A) For the purpose of determining or securing compliance with this 
Final Judgment, and subject to any legally recognized privilege, duly 
authorized representatives of the United States Department of Justice 
shall, upon written request of a duly authorized representative of the 
Assistant Attorney General in charge of the Antitrust Division, and on 
reasonable notice to Defendants, be permitted:
    (1) Access during Defendants' office hours to inspect and copy, or 
at Plaintiff's option, to require Defendants to provide copies of all 
records and documents in their possession or control relating to any 
matters contained in this Final Judgment; and
    (2) To interview, informally or on the record, Defendants' 
directors, officers, employees, agents or other Persons, who may have 
their individual counsel present, relating to any matters contained in 
this Final Judgment. The interviews shall be subject to the reasonable 
convenience of the interviewee and without restraint or interference by 
Defendants.
    (B) Upon written request of a duly authorized representative of the 
Assistant Attorney General in charge of the Antitrust Division, 
Defendants shall submit written reports, under oath if requested, 
relating to any of the matters contained in this Final Judgment as may 
be requested.
    (C) No information or documents obtained by the means provided in 
this Final Judgment shall be divulged by the Plaintiff to any person 
other than an authorized representative of the executive branch of the 
United States or of the Federal Trade Commission, except in the course 
of legal proceedings to which the United States is a party (including 
grand jury proceedings), or for the purpose of securing compliance with 
this Final Judgment, or as otherwise required by law.
    (D) If, at the time information or documents are furnished by 
Defendants to Plaintiff, Defendants represent and identify in writing 
the material in any such information or documents to which a claim of 
protection may be asserted under Rule 26(c)(1) of the Federal Rules of 
Civil Procedure, and Defendants mark each pertinent page of such 
material, ``Subject to claim of protection under Rule 26(c)(1) of the 
Federal Rules of Civil Procedure,'' then the United States shall give 
ten (10) calendar days' notice prior to divulging such material in any 
legal proceeding (other than a grand jury proceeding) to which 
Defendants are not a party.

VII. Civil Penalty

    Judgment is hereby entered in this matter in favor of Plaintiff 
United States of America and against Defendants, and, pursuant to 
Section 7A(g)(1) of the Clayton Act, 15 U.S.C. Sec.  18a(g)(1), the 
Federal Civil Penalties Inflation Adjustment Act Improvements Act of 
2015, Pub. L. 114-74 Sec.  701 (amending the Federal Civil Penalties 
Inflation Adjustment Act of 1990), and Federal Trade Commission Rule 
1.98, 16 CFR 1.98, 81 FR 42,476 (June 30, 2016), Defendants are hereby 
ordered to pay a civil penalty in the amount of eleven million dollars 
($11,000,000). Payment of the civil penalty ordered hereby shall be 
made by wire transfer of funds or cashier's check. If the payment is 
made by wire transfer, Defendants shall contact Janie Ingalls of the 
Antitrust Division's Antitrust Documents Group at (202) 514-2481 for 
instructions before making the transfer. If the payment is made by 
cashier's check, the check shall be made payable to the United States 
Department of Justice and delivered to:

Janie Ingalls
United States Department of Justice
Antitrust Division, Antitrust Documents Group
450 5th Street, NW, Suite 1024
Washington, DC 20530

    Defendants shall pay the full amount of the civil penalties within 
thirty (30) days of entry of this Final Judgment. In the event of a 
default in payment, interest at the rate of eighteen (18) percent per 
annum shall accrue thereon from the date of default to the date of 
payment.

VIII. Retention of Jurisdiction

    This Court retains jurisdiction to enable any party to this Final 
Judgment to apply to this Court at any time for such further orders and 
directions as may be necessary or appropriate to carry out or construe 
this Final Judgment, to modify or terminate any of its provisions, to 
enforce compliance, and to punish any violations of its provisions.

IX. Expiration of Final Judgment

    This Final Judgment shall expire ten (10) years from the date of 
its entry.

X. Costs

    Each party shall bear its own costs.

XI. Public Interest Determination

    The entry of this Final Judgment is in the public interest. The 
parties have complied with the requirements of the Antitrust Procedures 
and Penalties Act, 15 U.S.C. Sec.  16, including making copies 
available to the public of this Final Judgment, the Competitive Impact 
Statement, and any comments thereon and the United States' responses to 
comments. Based upon the record before the Court, which includes the 
Competitive Impact Statement and any comments and response to comments 
filed with the Court, entry of this Final Judgment is in the public 
interest.

DATED:-----------------------------------------------------------------

Court approval subject to the Antitrust Procedures and Penalties 
Act, 15 U.S.C. Sec.  16

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Hon. William Alsup,
United States District Judge.

[FR Doc. 2016-17432 Filed 7-22-16; 8:45 am]
 BILLING CODE 4410-11-P