Activist Investor to Pay $609,810 to Settle HSR Violations
Activist investor Third Point LLC and three funds that it controls have agreed to settle Federal Trade Commission charges that the funds violated the premerger notification and waiting period requirements of the Hart-Scott-Rodino Act, or HSR Act, after they acquired the voting securities of Dow DuPont Inc. (“Dow DuPont”).
Dow Chemical Company (“Dow”) and E.I du Pont de Nemours and Company (“DuPont”) entered into a Merger Agreement pursuant to which Dow and DuPont would consolidate into Dow DuPont. On August 31, 2017, Dow and DuPont completed the consolidation pursuant to the Merger Agreement. As a result of the consolidation, all holders of Dow and DuPont voting securities received voting securities of Dow DuPont.
According to the complaint, on August 31, 2017, each defendant fund received voting securities of DowDuPont valued in excess of the size-of the-transaction test which was $80.8 million. Defendant Third Point Offshore acquired 6,446,300 voting securities of DowDuPont valued at approximately $429.6 million. Defendant Third Point Ultra acquired 4,376,813 voting securities of DowDuPont valued at approximately $291.7 million. Defendant Third Point Partners acquired 2,540,700 voting securities of DowDuPont valued at approximately $169.3 million.
The complaint alleges that each defendant fund was its own ultimate parent entity within the meaning of the HSR Rules and had its own obligation to comply with the notification and waiting period requirements of the HSR Act and the HSR Rules.
Previously, on April 7, 2014, each defendant fund had filed under the HSR Act to acquire voting securities of Dow and had observed the waiting period. According to the complaint, Section 802.21 of the HSR Rules did not exempt the defendant funds’ acquisitions of DowDuPont voting securities because DowDuPont was not the same issuer as Dow within the meaning of the HSR Rules. Among other things, for example, DowDuPont competes in additional lines of business from those in which Dow competed.
The complaint notes that the defendants are currently under a court decree resulting from allegations that they previously violated the HSR Act in connection with acquisitions of voting securities of Yahoo! Inc.. Specifically, on August 24, 2015, the United States filed a complaint for equitable relief alleging that defendants’ acquisitions of Yahoo voting securities in August and September of 2011 violated the HSR Act. The complaint does not allege that the defendants’ conduct alleged in the current complaint violated the 2015 court order.
Under the stipulated proposed order that the Department of Justice filed on behalf of the FTC in the U.S. District Court for the District of Columbia, the three Third Point funds will collectively pay $609,810 in civil penalties, and they, together with Third Point LLC, will be barred from committing future violations of the HSR Act in connection with corporate consolidations.
The proposed settlement is subject to notice and comment and final court approval.
Contact Steve Quinlivan for more information.