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ValueAct Influenced Big-Oil Merger, Feds Say

OAKLAND, Calif. (CN) - The federal government sued hedge fund ValueAct Capital in Federal Court Monday, claiming it attempted to influence the business decisions of Halliburton and Baker Hughes by buying up stock in both on the heels of a proposed merger.

The merger, in which Halliburton intended to pay $35 billion to acquire rival Baker Hughes, is still under review by the United States and the European Commission, which the Wall Street Journal reported last year said has "serious potential competition concerns" that could reduce choices and lead to higher prices for consumers.

The government's complaint says "activist investor" ValueAct Capital began buying up stock in both companies following the merger announcement on Nov. 17, 2014.

"From the beginning, ValueAct anticipated influencing the business decisions of the companies as the merger process unfolded," the government's complaint says.

The government accuses ValueAct Capital both of failing to notify the Federal Trade Commission and Department of Justice and not observing a waiting period before engaging in such transactions.

According to the government, those failures violate requirements mandated by the Hart-Scott-Rodino Antitrust Improvements Act, which gives antitrust enforcement agencies time to investigate potentially anticompetitive transactions.

The firm manages over $16 billion on behalf of its investors, according to the Justice Department.

In a statement Monday, Assistant U.S. Attorney General Bill Baer of the Justice Department's Antitrust Division said, "ValueAct's substantial stock purchases made it one of the largest shareholders of two competitors in the midst of our antitrust review of the companies' proposed merger, and ValueAct used its position to influence decision-making at both companies. "ValueAct was not entitled to avoid Hart-Scott-Rodino requirements by claiming to be a passive investor. Given the seriousness of the violation and ValueAct's prior Hart-Scott-Rodino violations, we will be seeking significant civil penalties and an injunction against further violations."

The government is demanding at least $19 million in civil penalties.

ValueAct informed investors about its strategy and explained via memos that purchasing a stake in both companies would increase the likelihood of the merger happening, the complaint says. It cites an email sent on Dec. 16, 2014 by ValueAct's CEO Jeffrey Ubben to his partners saying, "If we own both we can drive new terms to get the deal done if weird [expletive] is happening."

The complaint also points to ValueAct's suggestion to change Halliburton's executive compensation plan in July 2015, its efforts to help restructure the merger and discussions about selling parts of Baker Hughes should the deal fall through.

The lawsuit says ValueAct has engaged in such conduct before, and agreed to pay a $1.1 million civil penalty in 2005 for failing to make required Hart-Scott-Rodino filings after acquiring voting securities.

The firm did not respond to a request for comment Monday.

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