Recent Cases Serve as a Reminder of the Potential Impact of HSR Reporting Requirements and Other Key Disclosure Rules on Shareholder Activism

Morrison & Foerster LLP

Two recent enforcement actions by the Department of Justice and the Federal Trade Commission (the “FTC”) confirm that there is continuing attention in the United States on compliance by investors with the reporting requirements under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) in connection with significant acquisitions of voting securities of a public company. On June 19, 2013, the Department of Justice settled with a civil penalty of $720,000 a civil antitrust action against MacAndrews & Forbes Holdings, Inc. based on MacAndrews having increased its equity stake in Scientific Games Corporation without first filing the required notification under the HSR Act and observing the HSR Act waiting period. In addition, on July 2, 2013, the FTC announced that Barry Diller will pay $480,000 in civil penalties to settle charges alleging that Mr. Diller violated the notification requirements of the HSR Act as a result of Mr. Diller’s acquisitions of shares of The Coca Cola Company between 2010 and 2012.

While neither one of above-referenced situations involved shareholder activism, both enforcement actions should serve as a reminder to activist investors that antitrust counsel should be consulted before an investor takes a significant position in a public company and in connection with any subsequent stakebuilding effort, and that the government will take action where it finds violations. On the flip side, there may be opportunities for a company that is the target of shareholder activism to use the HSR Act and other legal limitations offensively in dealing with an activist investor. What follows is a short outline of certain key considerations regarding U.S. reporting obligations that a target company should bear in mind when facing an activist investor.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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