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Barry Diller to Pay $480,000 Fine for Failure to File HSR

by Carla A. R. Hine

The Federal Trade Commission (FTC) announced a settlement today with Barry Diller for failing to file a Hart-Scott-Rodino (HSR) notification in connection with his acquisition of shares of Coca-Cola over the course of 2010-2012.  Diller will pay $480,000 in civil penalties.

Diller acquired Coca-Cola voting securities, and as a result of those acquisitions, held Coca-Cola shares valued in excess of the HSR thresholds, but did not file or observe the HSR waiting period.  Diller made corrective filings over a year ago, which alerted the FTC to HSR Act violations.  Diller had previously made a corrective filing in a separate transaction, and the FTC did not impose a penalty at that time but did note that “Mr. Diller is accountable for instituting an effective program to ensure full compliance with the [HSR] Act’s requirements.”  Here, Diller only made the corrective filings after in-house counsel for Coca-Cola inquired as to whether an HSR filing was required for his most recent acquisition.

The FTC noted specifically that Diller’s acquisition did not fall within the “investment only” exemption – which generally exempts acquisitions of voting securities where the acquirer will hold less than 10 percent of the voting securities of the issuer and will remain a passive investor – because Diller intended to “participate in the formulation, determination, or direction of the basic business decisions of Coke” as a Coca-Cola board member.

This announcement follows the FTC’s June 20 announcement that MacAndrews & Forbes agreed to pay $720,000 in connection with its failure to file HSR.  Like Diller’s situation, MacAndrews & Forbes also had a prior violation of the HSR Act in connection with a separate transaction.  While not an official enforcement policy, the FTC appears to give first-time offenders one free pass, but will impose civil penalties where subsequent violations occur.

Institutional investors, executives and directors should take note of this case.  Some institutional investors may be able to take advantage of the “investment only” exemption where their holdings remain below 10 percent and they do not take an active role in the business decisions of the company.  However, the “investment only” exemption does not apply to executives or directors (like Diller) who may acquire shares on the open market or in connection with compensation packages.

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$720,000 Civil Penalty for Failure to File HSR

by Carla A. R. Hine

Today the Department of Justice (DOJ), on behalf of the Federal Trade Commission (FTC), announced a settlement with MacAndrews & Forbes for failing to file Hart-Scott-Rodino (HSR) in connection with the acquisition of voting securities of Scientific Games (SG).  MacAndrews & Forbes, which is a wholly-owned holding company of Ronald Perelman, will pay $720,000 for failing to file HSR. 

MacAndrews & Forbes had filed HSR and observed the waiting period for a prior acquisition of SG voting securities.  Under the HSR Rules, a buyer that has filed HSR and observed the waiting period can continue to acquire voting securities of an issuer valued up to the next notification threshold for a period of five years following expiration of the HSR waiting period.  (The relevant notification thresholds in acquisitions of less than 50 percent of the voting securities are $50 million, $100 million and $500 million, each of which are adjusted annually.)  However, if the buyer will pass the next notification threshold, or acquire additional stock after the five year period expires, a new HSR filing is required.  The HSR size-of-transaction is determined by valuing what a buyer will hold as a result of the transaction.  In other words, the buyer needs to look at the value of the voting securities of an issuer it currently holds aggregated with the value of the stock it will acquire.  The value of publicly traded stock, such as SG’s, is determined by looking at the lowest closing quotation price in the preceding 45 calendar days.  As such, if a stock goes up in value over time, even acquisitions of small tranches of shares can put an acquiring person above a notification threshold.

That is what happened in MacAndrews & Forbes’s case.  It had filed HSR in February 2007 and the five year period in which it could make additional acquisitions expired when it acquired an additional 800,000 shares, valued at $6.5 million, in June 2012.  This acquisition, when aggregated with the value of SG stock MacAndrews & Forbes already held, exceeded the filing threshold.  MacAndrews & Forbes realized the inadvertent failure to file, and submitted a corrective filing in September 2012.  The takeaways here are to remember that HSR thresholds consider both what a buyer already holds in addition to what else it will acquire, and that subsequent potential HSR obligations need to be monitored over time.

To view the press release, click here.

To view the complaint, click here.

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