Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World

Chapter 11

Institutions and Activist Hedge Funds

Breaking Up Deals Together Around the World

Faced with an unsavory blockbuster merger, institutional investors have traditionally thrown their arms up in frustration or sold their shares. This “do nothing” response fits with their institutional conflicts. Lashing out publicly against one of their investments would make it more difficult to gain a customer or financial advisory contract down the road.

In the few cases where, historically, institutions have grown dissatisfied with the price and viability of a mega-merger, any engagement with executives on the matter typically took place behind the scenes. CEOs and institutional portfolio managers discussed investor concerns quietly and in a very gentlemanly, upright, and professional manner. Corporate Library's Nell Minow relates a story of a manager at a large U.S. mutual fund getting very angry with the CEO of one of its portfolio companies. The mutual fund manager told the CEO it was time to go, but all the communications took place in private.

Now things are changing. Institutions are beginning to put a magnifying glass onto deals struck between large corporations. Institutional investors are beginning to wake up and realize they have been on the losing end of a rash of poorly thought-out transactions. Some institutions are crawling out of the shadows and making their thoughts about deals public, particularly as they pertain to mega-mergers. Looser Securities and Exchange Commission ...