The Federal Trade Commission (“FTC”) and U.S. Department of Justice (“DOJ”) have a slightly different take on the old saying of “fool me once” when it comes to violating the premerger notification requirements as two investors recently found out. As we have reported before, under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, 15 U.S.C. § 18a (the “HSR Act”), if certain thresholds are met involving the size (or dollar value) of the persons involved and/or the size of the transaction, the HSR Act requires parties to a transaction (stock or assets) to file a notification with the federal antitrust agencies before completing the transaction (the “premerger notification”) and wait for a period of time before closing the transaction. If the parties fail to file a premerger notification, they can face a civil penalty of up to $16,000 per day from the date of the transaction until they come into compliance with the rule. Not surprisingly, such penalties can add up quickly. But not infrequently, if the failure was inadvertent and it was the offending party’s first offense, the FTC and DOJ have been known to show some leniency. Both Len Blavatnik and Leucadia National Corporation had been recipients of such leniency the first time they violated the premerger notification requirements. The second time around, the federal antitrust agencies were not so forgiving.
In August 2014, Mr. Len Blavatnik, who lives in London, acquired shares of TangoMe, a tech company in California, resulting in his holding an approximate $228 million stake in the company. Because the transaction and the net worth of Mr. Blavatnik and TangoMe exceeded the minimum reporting threshold established by the HSR Act, Mr. Blavatnick was required to file a premerger notification form with the federal antitrust agencies, which he eventually did on December 17, 2014, more than four (4) months after acquiring the securities. Unfortunately for Mr. Blavatnick, he had already used his unofficial “get-out-of-jail-free” card back in 2010, when he bought voting shares of LyondellBasell Industries N.V. and failed to file the required premerger notification. During his discussion with the FTC regarding his first failure to file, he had promised the federal antitrust agencies that he would consult HSR counsel prior to any future acquisition. But Mr. Blavantnik failed to keep that promise, violated the premerger notification requirements again, and has now agreed to pay $656,000 in civil penalties.
Leucadia National Corporation has found themselves in a similar situation. In August 2007, Leucadia acquired an eight percent (8%) interest in a company, Goober, of which Leucadia already owned a 42% interest, giving Leucadia “control” of Goober and triggering the HSR premerger notification requirements. Leucadia realized its mistake and made a corrective filing with the federal antitrust agencies about a year later. In part because the violation was inadvertent and a first time offense, the federal antitrust agencies let Leucadia off with a promise to establish HSR compliance procedures and to not do it again. But in July 2013, Leucadia violated the premerger notification requirements again, this time by failing to report a conversion of its ownership interests in the financial services company, Knight Capital Group, Inc. As a result, last month, Leucadia agreed to pay $240,000 in civil penalties.
While not all acquisitions of voting securities require an HSR Act filing, determining whether a contemplated acquisition will require a filing is not a simple task. And even though the DOJ and FTC do not always come down hard on first time offenders, nothing is guaranteed. At the very least, a violation of the HSR Act will involve multiple (potentially tense) discussions with one or more federal agencies, possible document production requests, maybe even an interview or two with company executives. And after all that is said and done, even if you do not have to pay a civil penalty, you are now on their radar. Seeking the advice of experienced HSR counsel to help determine whether a contemplated transaction triggers a notification requirement can save you time, money, and a huge headache.