Chapter 7

-Are not regulated

-Can’t market themselves

-Can’t take money from the public

-Larger management fees

-Participating in the profits

-New corporate raiders

-Rise due…

• High cash flows

• Growth of economy

Acquire equity investments with no intentions on being activist

Acquire stock positions with intent to make changes in the company which will increase the stock price & give them a profit

-Board seats

-Proxy fights

-Share buybacks & dividends

-Targets have lots of cash & low debt

-Economy growing well

-Market growing

-Activists want to pressure companies into using cash for dividends & share buyback

-Low debt —> activists want them to take on debt & use cash to make payments to shareholders

-Research shows that after acitivists establish a position —> stock price rises

-Buyout targets have activists in shareholder group —> higher buyout premiums

-Hedge fund activists vs. PE-firms

-Hedge funds cause companies to be acquired

-Period returns are double the amount than from companies who won’t be acquired

-Active investments outperform passive —> short run

-Active group with board seats —> outperformed others in active group

-Research shows target company performance improves after activists establish their stock positions

-Q = Market Value / Replacement Costs

-Q-Ratio

• <1 (undervalued)

• >1 (overvalued)

-Activists often communicate with each other prior to taking actions

-No insider trading —> but similarities