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The Morning Brief: DOJ Sues ValueAct Over Halliburton Deal

ValueAct Capital is the target of a civil antitrust lawsuit by The Department of Justice. The government is accusing the San Francisco activist hedge fund firm of violating certain requirements of the Hart-Scott-Rodino Antitrust Improvements Act stemming from the hedge fund’s earlier purchases of shares of Halliburton and Baker Hughes, which in November 2014 announced plans to merge in a $35 billion deal.

The DOJ alleges that ValueAct purchased more than $2.5 billion of Halliburton and Baker Hughes voting shares without complying with the law’s notification requirements. In its announcement the DOJ asserts that ValueAct bought the shares “with the intent to influence the companies’ business decisions as the merger unfolded.” As a result, the DOJ asserts that the hedge fund was not entitled to an exemption had the stock purchases been made as “investment-only” exemptions to the law’s notification requirements.

The HSR Act imposes notification and waiting period requirements for certain transaction sizes. There is an exemption for investors acquiring less than 10 percent of the shares if they were made “solely for the purposes of investment” with no intention of participating in the company’s business decisions, according to the DOJ.

“ValueAct Capital is a long-term value investor,” the firm says in a statement. “We take our obligations to comply with the law, including the HSR Act, extremely seriously. We have acted entirely properly and in compliance with the law. We fundamentally disagree with the Department of Justice’s allegations in this case.”

ValueAct faces a maximum civil penalty of $16,000 per day. In its statement, the firm asserts it will “contest the Department of Justice’s action and will vigorously defend our position.”

Although there are no allegations of criminal wrongdoing, the lawsuit is still a black mark on founder Jeffrey Ubben and ValueAct, which has enjoyed a strong reputation since its 2000 inception. It has been a long-time shareholder of Valeant Pharmaceuticals International and played a major role in its growth strategy over the years.

In January 2015 ValueAct acquired 5.1 percent of Baker Hughes. In an interview at the time, Ubben told Bloomberg: “We love the merger with Halliburton. We want this deal to get done especially because of the oil price decline.” In February 2015 ValueAct disclosed it had acquired about 3.5 percent of Halliburton’s shares in the fourth quarter of 2014.

In the first quarter of 2015, ValueAct lifted its stake in Halliburton by 61 percent and Baker Hughes by 55 percent. It raised its stake in Halliburton by another 11 percent in the second quarter.

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Daniel Loeb’s Third Point Offshore, managed by New York-based Third Point, posted a 1.8 percent gain in March, cutting its loss for the year to 2.3 percent. For the month, Third Point made 3 percent on its longs in its long-short book, offset by a 1.9 percent loss on its shorts. In its credit book, Third Point made 1 percent on its long positions and suffered a 0.6 percent loss on its shorts. At the end of March, the long-short book was 54.1 percent net long, up from 51.8 percent the previous month.

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Och-Ziff Capital Management Group disclosed that net assets under management declined by $1 billion in the past month alone, even though its main funds were positive in March. The New York firm’s flagship multistrategy fund, the OZ Master Fund, rose 0.83 percent last month, trimming its loss for the year to 3.36 percent. The OZ Asia Master Fund rose 2.11 percent and is now down 3.17 percent for the year, while the OZ Europe Master Fund rose 0.93 percent in March and is down 2.50 percent this year.

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Tesla Motors surged another 4 percent or so after rising 3.4 percent on Friday following the electric car maker’s announcement that reservations — the term the company uses for sales orders — of its Model 3 car were much higher than experts expected. The stock is the largest holding of Daniel Benton’s Rye Brook, New York-based Andor Capital Management. In a Tweet Monday, Benton stated: “Value of Tesla Model 3 reservations will soon exceed @TeslaMotors cumulative revenue since inception. Didn’t see that coming @elonmusk!”

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The SunEdison saga took another turn for the worse on Monday. TerraForm Global, one of its yieldco units, is suing the embattled renewable energy company for misappropriating $231 million, according to published reports. In addition, TerraForm said in a regulatory filing it is no longer in compliance with Nasdaq listing requirements because the company has failed to file its 10-K for the 2015 calendar year. TerraForm has until May 31 to submit a plan for regaining compliance.

“If TerraForm Global is still unable to file its Form 10-K by May 31, 2016, then TerraForm Global intends to submit a compliance plan on or prior to that date,” the company added in the filing. The Nasdaq can grant an exception of up to 180 calendar days from the filing’s due date, or until September 26, 2016, to regain compliance. Shares of TerraForm fell 7.7 percent on Monday, to close at $9.07. Meanwhile, shares of SunEdison once again more than halved, to close at $0.21, as investors become even more fearful the company will file for bankruptcy.

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Credit Suisse raised its price target on hedge fund favorite Apple from $140 to $150, noting that the consumer electronics company’s services business “is an underappreciated driver.” The bank tells clients in a report that services growth could more than double by 2020.

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