June 11, 2020
Activism: What’s a Little Tip-Off Among Friends?
Morgan Lewis’s Sean Donahue recently tweeted about a new study that found evidence that activists are leaking information about upcoming campaigns to institutional investors prior to their launch. Here’s the abstract:
We document a network of information flow between activists and other investors during the 10 days prior to the announcement of a campaign. We use EDGAR search activity matched to institutional investor IP addresses to identify investors who persistently download information on an individual activist’s campaign targets in the days prior to that activist’s 13D disclosures.
This pattern of informed EDGAR access suggests leaked information from the activist to the unaffiliated institutional investor, who is not named in the 13D filing. We find that the presence of these informed investors is associated with higher pre-13D turnover, higher post-13D returns, and an increased likelihood of the activist pursuing and winning a proxy fight.
I suppose that, like Captain Renault in “Casablanca,” I could feign shock at this news, but we’re all grownups here. However, as this Institutional Investor article points out, if this pre-announcement information sharing gave rise to some kind of agreement by investors to support the activist, it could call into question the accuracy of statements in activist 13D filings.
– John Jenkins