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Halliburton, Expro and Umbrellastream Star In Opinion Procedure Release 08-02

Halliburton's messy battle to acquire British firm Expro via a hostile takeover has been big news in the global business press, with Halliburton up one day and down the next, but fighting on and on. Now, though, the story isn't just big in the business press. It's big too in the FCPA press (if there is such a thing). What's going on?

Halliburton is the Requestor in the Justice Department's latest Foreign Corrupt Practices Act Opinion Procedure Release No.: 08-02 (June 13, 2008). It's trying to acquire all the shares of the Target, which isn't identified in the Release but is Expro International Group PLC, a U.K.-based company traded on the London Stock Exchange. Expro has about 4,000 employees, and operates in over fifty countries throughout Africa, the Middle East, Asia, the former Soviet Union, South America, Europe, and North America. Its business is well flow management for the oil and gas industry.

Competition for Expro comes from a group of foreign investors. In the Release they're called the Competitor but in real life they're known as Umbrellastream.

Halliburton's problem is that it can't do much pre-acquisition due diligence because of "U.K. legal restrictions inherent in the bidding process for a public U.K. company." So it will only be able to fish into Expro post-closing. On top of that, Expro's board has already recommended to the shareholders that Umbrellastream's bid be accepted, which means Halliburton won't be getting any more information.

So Halliburton would be buying a black box for FCPA compliance purposes, and it's asking the DOJ what will happen if Expro has been paying bribes to foreign officials to obtain business. Will Halliburton be held responsible for Expro's past FCPA offenses, if there are any, or for its violations after the acquisition but before Halliburton has a chance to learn the facts and clean up any compliance problems? Halliburton is worried -- as it should be.

Like most oil and gas services firms, Expro operates in high-risk countries and deals directly with government-owned customers. More pointedly, Halliburton may have seen evidence of non-compliance but can't say anything now because it signed a non-disclosure agreement with Expro. (In a footnote, the DOJ warns would-be requestors not to limit their ability to convey facts in an Opinion Request by signing non-dislosure agreements. But it lets Halliburton get away with it this time.)

While Halliburton would like to condition its bid on successful FCPA and anti-corruption due diligence and pre-closing remediation, it can't do that. Umbrellastream's bid is unconditional so Halliburton's needs to be the same or it will automatically lose.

So Halliburton is asking "three questions: (1) whether the proposed acquisition transaction itself would violate the FCPA; (2) whether through the proposed acquisition of Target, Halliburton would "inherit" any FCPA liabilities of Target for pre-acquisition unlawful conduct; and (3) whether Halliburton would be held criminally liable for any post-acquisition unlawful conduct by Target prior to Halliburton's completion of its FCPA and anti-corruption due diligence, where such conduct is identified and disclosed to the Department within 180 days of closing."

The DOJ says it's OK to proceed. But to get the green light, Halliburton has promised to pay a very high price. And that "price" is what makes Release 08-02 absolutely unique among all Releases.

If Halliburton wins Expro, it must meet right away with the DOJ and disclose whether it has any information that "suggests that any FCPA, corruption, or related internal controls or accounting issues exist or existed at the Target and, if so, will disclose such information to the Department." That's the kick-off.

Ten days later it will give the DOJ . . .

. . . a comprehensive, risk-based FCPA and anti-corruption due diligence work plan which will address, among other things, the use of agents and other third parties; commercial dealings with state-owned customers; any joint venture, teaming or consortium arrangements; customs and immigration matters; tax matters; and any government licenses and permits. Such work plan will organize the due diligence effort into high risk, medium risk, and lowest risk elements. Halliburton shall consult with the Department regarding the work plan. Over time, the work plan shall be reviewed and, if necessary, revised as the plan is implemented and more information is learned.

Then there are milestones at 90, 120 and 180 days, by when Halliburton must have finished the three "risk" phases of due diligence, all the while providing periodic reports to the DOJ.

Meanwhile, Halliburton will impose on Expro Halliburton's Code of Business Conduct and specific FCPA and anti-corruption policies and procedures; it will give all employees compliance training; fire agents and suppliers who aren't being retained for compliance reasons; and require those agents and others being retained to sign new contracts that "incorporate appropriate FCPA and anti-corruption representations and warranties, anti-corruption provisions."

In another provision new to Opinion Procedure Releases, Halliburton represents that "post-closing, it will maintain Target as a wholly-owned subsidiary for so long as the Department is investigating any conduct by Target or any of its officers, directors, employees, agents, subsidiaries, and affiliates." And it agrees that no matter happens, Expro and all its subsidiaries and affiliates will "retain their liability for past and future violations of the FCPA, if any." That's not an express prospective waiver of any and all available defenses, but it's close. And anyway, Halliburton will already have given to the DOJ all the evidence of Expro's FCPA violations, which the DOJ would then be able to use to charge Expro and its subsidiaries (and presumably any of their directors, officers, employees and agents) with FCPA violations.

No wonder the DOJ says in its conclusion that giving Halliburton the go-ahead to buy Expro (and expose it to criminal enforcement action after the closing) "advances the interests of the Department in enforcing the FCPA and promoting FCPA due diligence in connection with corporate transactions, and permits the Requestor to proceed with an additional bid for Target with the benefit of the protections afforded by the Opinion Release procedure." Bring it on.

If anyone from Expro is reading Release 08-02, they must be uncomfortable and a bit cheesed off. Is Halliburton promising to deliver their heads to the DOJ on a platter if they've ever done anything that would or could violate the FCPA? Well . . . . So will it surprise anyone if Expro makes very sure that Halliburton does not win this bid?

View DOJ Opinion Procedure Release 08-2 here.

Full post as published by The FCPA Blog on June 25, 2008 (boomark / email).