Originally Syndicated on March 16, 2024 @ 10:51 am
Third Point LLC and its affiliated hedge funds have faced significant scrutiny from federal regulators over alleged violations of antitrust premerger notification laws. These cases offer valuable lessons on the importance of rigorous compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), especially for institutional investors involved in significant stock acquisitions.
Third Point: Overview
Third Point Management is a $27.6 billion AUM investment business based in the United States. It runs a venture capital fund and property and casualty reinsurer in addition to its main operation as a public equity activist. Worldwide, the company operates seven offices.
Daniel S. Loeb launched Third Point in 1995; its main office is in New York. Reputably effective activist investor Third Point has improved the firms it invests in with notable changes. Third Point is a well-known asset management company.
Third Point and Yahoo! Inc. Case
In August 2015, the Federal Trade Commission (FTC) announced a settlement with Third Point LLC and three of its affiliated funds—Third Point Partners Qualified L.P., Third Point Ultra Ltd., and Third Point Offshore Fund Ltd.—regarding their 2011 stock acquisitions in Yahoo! Inc. The FTC’s complaint centered on the funds’ failure to adhere to the premerger filing and waiting requirements mandated by the HSR Act.
Under the “investment-only” exemption, which permits acquisitions of up to 10% of a company’s voting securities without triggering HSR Act obligations—as long as the investor has no intention of influencing the target’s management—the funds contended that their acquisitions were exempt from these requirements. But the FTC argued that Third Point’s activities—discussing possible Yahoo board members and thinking about a proxy dispute, for example—showed a purpose beyond investment.
The settlement, approved by the U.S. District Court for the District of Columbia, required Third Point to cease reliance on the investment-only exemption if engaging in certain activities, such as nominating board candidates or soliciting proxies, within four months prior to an acquisition. This settlement underscores the FTC’s stance that the investment-only exemption is narrowly interpreted and requires strict adherence to the Act’s notification and waiting period requirements.
The DowDuPont Case: A Repeat Offender
Fast forward to August 2019, and Third Point LLC and its affiliated funds faced another challenge—this time over their acquisition of shares in DowDuPont Inc., following the merger of Dow Inc. and E.I. du Pont de Nemours & Company. The FTC alleged that the funds failed to file the necessary premerger notifications under the HSR Act after their shares converted to those of the newly formed DowDuPont.
The settlement that followed, which included a $609,810 civil penalty, made clear how crucial it is to abide by the premerger notification laws. Even though the waiting period had passed and the defendants had filed corrective actions, the penalty acted as a warning about the repercussions of non-compliance. An injunction against future occurrences of the same offenses was also imposed by the settlement.
Key Takeaways for Investors
- Recognize the Exemption Caps: The exemption for investments alone does not provide a complete defense against HSR Act obligations. This exemption may be nullified by taking steps like applying for board seats or participating in conversations about company governance. Investors must to examine their actions closely to make sure they don’t unintentionally result in filing obligations.
- Comply with Filing Requirements: If the total value over the HSR Act level, prompt notification and waiting period observance are required, regardless of the type of transaction or intent. In order to prevent civil fines and legal consequences, this is essential.
- Seek Experienced Counsel: It is advisable to seek legal advice from professionals in the field of antitrust law due to the intricate nature of these rules and the restrictive application of exclusions. This guarantees adherence to relevant securities laws, including the Securities Exchange Act, as well as the HSR Act. Act of 1934.
- Monitor Compliance Continuously : Examine compliance procedures on a regular basis and watch out for any actions that could change how an acquisition’s objective is interpreted. Putting in place strong corporate compliance procedures can aid in reducing the risks connected to premerger notifications.
Conclusion
The Third Point LLC settlements are a clear reminder of how crucial it is to strictly follow antitrust premerger notice laws. Comprehending and managing these regulations is not just about keeping investors out of trouble; it’s also about creating an atmosphere that is transparent and complies with regulations. Investors can enhance their compliance responsibilities and promote equitable competition by remaining knowledgeable and seeking advice from legal experts.
