Activist Investor 13D Filings - Why they're Important

If you're not familiar with 13D Filings the below (from 13D Alerts) might be helpful:

What is a 13D filing?
The Schedule 13D, also called the "Beneficial Ownership Report" is an SEC filing that must be submitted within 10 days by any person or group of persons acquiring more than 5% of a publicly listed company.

What is a 13D/A Filing?
If there are any material changes to information provided in the initial 13D filing, the reporting person(s) are required to promptly file an amendment to the 13D filing, which is filed as a 13D Amendment. 

Who typically makes 13D filings?
While all types of investors from individuals to public companies file 13D filings, hedge funds and specifically activist hedge funds (or an individual activist investor) are known for making 13D filings. This is because the activist strategy of buying relatively large stakes in target companies (enabling the activist to call for actions to be taken by management and board) ends up triggering a 13D filing. 

What info is included in the 13D filing?
The most important item included in the 13D filing includes the "Purpose of Transaction", where the investor is required to disclose their intentions for the investment. Also important, is the price and date at which the activist has purchased his or her shares in the company which is also included in the filing!

What are activist investors?
Activist investors by contrast to passive institutional investors (i.e. mutual funds or ETFs) take an engaged or "active" role in their investment in a company. These activist shareholders often make an investment in a company with a ready agenda of actions they want the executive management and board of directors to execute. They sometimes push for a seat on the board of directors and in cases where the management team does not cooperate with the activist, the fight is taken to shareholders for a vote in what is called a proxy fight. Well known activist investors include: Carl Icahn, T. Boone Pickens, Dan Loeb, Bill Ackman, Nelson Peltz, Paul Singer and ValueAct (Hedge Fund) to name a few. 

How do activists investors make money?
By unlocking value. A good activist investor is really just a value investor who creates a catalyst to unlock the value the market is not appreciating.  Some strategies to accomplish this include:

• Changing bad management/board, in order to improve performance (operational and share price)
• Disposing of under-performing assets to unlock capital to be allocated to the performing business/assets or to be returned to shareholders
• Calling for the return of excess capital to shareholders through dividends, special dividends or share buy backs. This can also include pushing companies that are under-levered to optimize their capital structure
• Separating disparate companies from each other allowing them to be managed independently and to allow their performance to be measured independently. This can result in the "Newcos" or "Spincos" to trade at higher multiples when separated and thus created value for shareholders
• Pushing the target company to sell it self to a strategic buyer at a premium to trading price 
• With companies that own a lot of assets and trade below book value, activist will push for the company to sell assets or liquidate in order for shareholders to realize the market value of the company's assets

So why are 13D filings important?
Because of this regulatory requirement, professional investors who use an activist strategy are required to disclose when they have made an investment, why they made the investment and at what price they made the investment. This gives regular investors the opportunity to selectively "co-invest" with these big time hedge funds managers and benefit from their efforts to unlock value (a strategy some call piggybacking and some call event-driven). Now in practice there is a lot involved to effectively executing this strategy and there are a lot of pitfalls so one must do their own diligence on investments and we we encourage you to read the disclaimer at the bottom of the page. That being said, using 13D filings as an idea generating tool to identify companies that could be undervalued AND have a professional investor actively working to unlock that value is a powerful tool. 

Submitted December 19, 2018 at 11:49PM by CatalystActivist https://ift.tt/2LukOgg