In a case that has sparked a debate over regulation of activist investors, New York hedge fund Third Point has settled charges it failed to seek antitrust clearance before acquiring shares in Yahoo nearly four years ago.
The charges alleging violations of the Hart-Scott-Rodino (HSR) Act were brought by the U.S. Department of Justice at the request of the Federal Trade Commission. The act requires acquirers of stock worth more than $76.3 million to notify antitrust regulators and observe a waiting period before closing the transaction.
An exception applies to stock purchases made “solely for the purpose of investment.” But the FTC said that characterization did not apply to Third Point’s acquisition of Yahoo stock.
“The investment-only exemption is a narrow exemption limited to those situations in which the investor has no intention to influence the management of the target firm,” Bureau of Competition Director Deborah Feinstein said in a news release. “Here, Third Point’s conduct demonstrated that it intended to have more than a passive interest in Yahoo.”
As part of a settlement announced Monday, Third Point, which was founded by outspoken activist Daniel Loeb, agreed to make all appropriate filings for the next five years. It could have faced millions of dollars in penalties.
The HSR Act’s filing and waiting requirements are intended to give regulators time to review deals for potential antitrust violations. The FTC voted 3-2 to refer the Third Point case to the Department of Justice, with commissioners disagreeing over the meaning of the phrase “solely for the purpose of investment.”
The majority cited Third Point’s communications with third parties to determine their interest in becoming a candidate for Yahoo’s board and the taking of other steps to assemble an alternate slate of directors. “Given these actions by Third Point, we do not believe the investment-only exemption applies,” the commissioners said.
The dissenters faulted the majority for a “narrow interpretation” of the exception, saying “the stock acquisition at issue here presented absolutely no threat of competitive harm and the type of shareholder advocacy pursued by [Third Point] often generates well-documented benefits to the market for corporate control.”