| Paul Singer of Elliott Management |
When Paul Singer’s Elliott Management Corp. disclosed on Monday evening its activist stake in Imperva, it apparently took investors by surprise.
Shares of the cybersecurity company advanced more than 11 percent on Tuesday. Before the big move, the stock was trading near the bottom of its 52-week range. In fact, the stock was down nearly 50 percent from its November peak when Elliott first disclosed its 9.8 percent stake.
The big one-day price surge is another reminder that activists are very careful these days not to telegraph their next moves, a development we have been chronicling over the past two years. Activists are determined to build their stakes before they are required to disclose the positions in various regulatory forms.
In the case of Imperva, the New York multistrategy firm with a strong bent for activism did not reveal owning a single share in its recent filing detailing first-quarter U.S. stock holdings.
The same held true when Elliott last week disclosed it held an 8.8 percent activist stake in LifeLock, the identity-theft protection company.
Elliott did not disclose a position in the stock in its first-quarter 13F filing. Meanwhile, the stock is now up 28 percent since Elliott “started to significantly buy shares” on May 20.
The hedge fund’s success in not telegraphing its positions in Imperva and LifeLock is no coincidence.
In early March, when Elliott disclosed its new activist campaign against Qlik Technologies, the shares of the software developer popped more than 10 percent on the first day of trading following the filing.
By then Elliott had filed its year-end 13F, which did not reveal a position in Qlik shares in the fourth quarter.
Elliott is not the only activist that is careful not to disclose positions in future targets.
In April, Starboard Value disclosed a 9.8 percent stake in Depomed, a pharmaceutical company that specializes in neurology-related products. The day after the announcement, the stock surged 13 percent.
New York–based Starboard was very careful not to trip required regulatory filings before it had finished building its position. It had begun buying stock in the company on February 17 and completed the purchases on April 6. It had ten days to file its 13D from the time it tripped the 5 percent ownership level.
Interestingly, in its filing Starboard stressed that it had been “closely monitoring all developments” at the company since 2015, when Depomed “took a series of shareholder-unfriendly steps to frustrate the attempts of” Horizon Pharma to acquire the company for at least $33 per share.
In the past, activists like Starboard may have taken a small position in the stock just to monitor the target and to be in a position to build a stake from there. However, the activist apparently chose not to buy even one share, which enabled it to “closely monitor” the stock without anyone being aware that it was a potential target.
It is not unusual for newly disclosed targets of activists or announced takeovers to jump in price. The movements of all of these stocks underscore what happens when a newly disclosed activist stake takes investors by surprise.
In early February the same thing occurred when Starboard disclosed a 6.7 percent stake in semiconductor maker Marvell Technology Group. The stock surged 6.9 percent on that news.
Again, Starboard was very careful about when it bought its shares and when it went public with the position.
It started building its position in early December 2015. All purchases made in December would be included in the firm’s fourth-quarter 13F.
However, like most other hedge funds, Starboard takes advantage of the entire 45-day period following the end of a quarter to file its required 13F detailing its U.S. stock holdings as of the end of the prior quarter.
So when Starboard made its initial 13D disclosure on Marvell, it was before the 13F was filed and therefore the first time the public learned about the position.
Barry Rosenstein’s Jana Partners has also been careful about when and how it discloses new activist targets.
In late February the New York firm disclosed in a 13D that it owned 8 percent of Team Health Holdings, a hospital staffing company, and submitted three nominees to the company’s board of directors. The company’s stock increased more than 17 percent on the news.
Regulatory filings show Jana began building its position on January 6. Apparently, Rosenstein made sure to not buy any shares the prior week, since they would have had to be included in his fourth-quarter 13F, which was filed before the Team Health 13D.
The upshot: All this is just a reminder for investors who follow the regulatory filings of hedge funds that this tactic often doesn’t work very well. The activists are careful to stay one step ahead of the game.
