Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
19Activity
0 of .
Results for:
No results containing your search query
P. 1
Hunting Endangered Species: Investing in the Market for Corporate Control Fall 2012 Strategy Paper

Hunting Endangered Species: Investing in the Market for Corporate Control Fall 2012 Strategy Paper

Ratings: (0)|Views: 33,656|Likes:
Published by Tobias Carlisle
The market for corporate control acts to catalyze the stock prices of underperforming and undervalued corporations. An opportunity exists to front run participants in the market for corporate control—strategic acquirers, private equity firms, and activist hedge funds—and capture the control premium paid for acquired corporations. Eyquem Fund LP systematically targets stocks at the largest discount from their full change-­‐of-­‐control value with the highest probability of undergoing a near-­‐term catalytic change-­‐of-­‐control event. This document analyzes in detail the factors driving returns in the market for corporate control and the immense size of the opportunity.
The market for corporate control acts to catalyze the stock prices of underperforming and undervalued corporations. An opportunity exists to front run participants in the market for corporate control—strategic acquirers, private equity firms, and activist hedge funds—and capture the control premium paid for acquired corporations. Eyquem Fund LP systematically targets stocks at the largest discount from their full change-­‐of-­‐control value with the highest probability of undergoing a near-­‐term catalytic change-­‐of-­‐control event. This document analyzes in detail the factors driving returns in the market for corporate control and the immense size of the opportunity.

More info:

Published by: Tobias Carlisle on Oct 09, 2012
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

04/11/2014

pdf

text

original

 
EYQUEMFUNDLPSTRATEGY
Fall2012
1
EY UEM
 
INVESTMENT MANAGEMENT
TobyCarlisle
+16465358629toby@eyquem.net
HuntingEndangeredSpecies
InvestingintheMarketforCorporateControl
ExecutiveSummary
Themarketforcorporatecontrolactstocatalyzethestockpricesofunderperformingandundervaluedcorporations.Anopportunityexiststofrontrunparticipantsinthemarketforcorporatecontrol—strategicacquirers,privateequityfirms,andactivisthedgefunds—andcapturethecontrolpremiumpaidforacquiredcorporations.EyquemFundLPsystematicallytargetsstocksatthelargestdiscountfromtheirfullchange-of-controlvaluewiththehighestprobabilityofundergoinganear-termcatalyticchange-of-controlevent.Thisdocumentanalyzesindetailthefactorsdrivingreturnsinthemarketforcorporatecontrolandtheimmensesizeoftheopportunity.
 
EYQUEMFUNDLPSTRATEGY
Fall2012
2
EY UEM
 
INVESTMENT MANAGEMENT
1.ExploitingOpportunitiesintheMarketforCorporateControl
Themarketforcorporatecontrolisthemarketforexternalmanagementcontrolofpubliclytradedcompanies.Targetedcompaniesaretypicallyunderperforming,withdepressedvaluationsasaresultofcorporategovernancefailure.Participantsinthemarket—strategicbuyers,privateequityfirms,oractivisthedgefunds—acttocatalyzethestockpricesofsuchunderperformingandundervaluedcorporations,eitherbytakeover,leveragedbuyout,orproxyfight.Biddersseektosubstituteexistingmanagementwithnew,externalgovernance,eitherbytakingoverthecorporationinitsentirety,orbycontrollingthecompositionoftheboardofdirectors.InHenryG.Manne’sclassic1965paper
MergersandtheMarketforCorporateControl 
1
,Mannedescribedthemarketasfollows:
Thelowerthestockprice,relativetowhatitcouldbewithmoreefficientmanagement,themoreattractivethetake-overbecomestothosewhobelievethattheycanmanagethecompanymoreefficiently. Andthepotentialreturnfromthesuccessfultakeoverandrevitalizationofapoorlyruncompanycanbeenormous.
Studiessuggestthatacquirerstendtooverpayforcorporatecontrol.
2
Indeed,theconventionalwisdominthemarketisthattheonlywaytosuccessfullycompleteatakeoveristooverpay.Thepremiumpaidforcontrolisoftensogreatthatiteliminatestheacquirer’sopportunityforevenaparreturn—aphenomenonknownasthewinnerscurse.”Ratheritisthetargetshareholdersatthetimeofthebidwhoenjoythelargestgain,earningapproximately43percentoverthepricesatwhichtargetfirms’sharestradedimmediatelypriortothetakeover.
3
Manypubliccompaniesinthe$250millionto$22billionmarketcapitalizationrangearenowtradingatasignificantdiscounttotheirvalueinachange-of-controlevent.Thisislikelyduetorecentabsenceofactivist

1
Manne,H.G.“MergersandtheMarketforCorporateControl,”
 JournalofPoliticalEconomy 
,Vol.73,No.2(Apr.,1965),pp.110-120.
2
Han,KiC.;Suk,DavidY.;Sung,HyunMo.“Theevidenceofbidders'overpaymentintakeovers:thevaluationratiosapproach,”
TheFinancialReview 
,May1,1998.
3
Dataarefortheperiod1980to2005,asrecordedinthe
HandbookofCorporateFinance:EmpiricalCorporateFinance
,Vol.2,Chapter15,pp.291-430.Eckbo,ed.,Elsvier/NorthHollandHandbookSeries,2008.
 
EYQUEMFUNDLPSTRATEGY
Fall2012
3
EY UEM
 
INVESTMENT MANAGEMENT
hedgefundsandthelullinmergerandacquisition(“M&A”)activity,whichhasbeensluggishinthefirsthalfof2012,with17,562dealsatavalueofapproximately$1.1trillion.
4
Thisisatemporaryperiodofcyclicalweaknesslikelytoreversesoon.PastperiodsofpersistentundervaluationhavebeenfollowedbyasteepincreaseinM&Aactivity.Typicalcompaniesintheinvestmentuniversehavethecustomarydefensivemechanismsinplace.Absenttheattentionofactivisthedgefunds,someveryattractivetargetsareunlikelytobeacquiredotherthanonafriendlybasis.Coercingthesecompaniesintoachangeofcontrolwillmeanafullproxyfightortenderoffer,whichisanactivisthedgefund’sbread-and-butter.Theotherparticipantsinthemarketnowhaveunprecedentedlevelsoffirepower.Americancorporationshold$2.2trillionincashontheirbalancesheets—morethanatanytimeinthelasthalf-century,
5
andprivateequityfirmsholdrecordlevelsofcapitalforbuyoutsatapproximately$3trillion.
6
Activisthedgefunds,quietafteraperiodofsuccessintheearly2000s,arelikelytore-emergeasthestarsmovebackintoalignmentforactivistinvesting.Theeconomicclimate,shareholdersentimentandopportunitiesavailablehavethepotentialtocreateanewgoldenageofM&Aactivity,likethehostiletakeoversandleveragedbuyoutwaveinthe1980sandtheprivateequityboomintheearly2000s.AclearopportunityexistsforpatientinvestorstosystematicallycapturethecontrolpremiumbyidentifyinglikelytargetsbeforeabidderannouncesatransactionorfilesaSchedule13Dnotice.Suchastrategyhasanumberofattractivequalities:
 
 AbnormalReturns:
ithasconsistentlybeatenthemarket,theinvestmentuniverse,andacomparablepassivevalueindex
 
 AsymmetricRisk:RewardProfile:
targetstockshavelimiteddownside,andthepotentialforanasymmetricallyelevatedupside
 
EmbeddedCatalysts:
targetstockshavehigh-probability,latentcatalysts
 
Scalable
:theinvestmentuniverseislarge,andliquid

4
Primack,D.“M&ACliff:Dealactivityfalls21%in2012,”
CNNMoneyTermSheet 
,July2,2012(http://finance.fortune.cnn.com/2012/07/02/ma-cliff-deal-activity-falls-21-in-2012/)
5
Pinkowitz,L.,Stulz,R.M.,Williamson,R.“MultinationalsandtheHighCashHoldingsPuzzle,”
NBERWorkingPaperNo.18120
,IssuedinJune2012
6
FinancialTimesJune30,2012,“Privateequityassetshitrecord$3tn”(http://www.ft.com/intl/cms/s/0/9e9e2ae8-da65-11e1-a413-00144feab49a.html#axzz25trEdDES)

Activity (19)

You've already reviewed this. Edit your review.
dfinnes liked this
1 hundred reads
1 thousand reads

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->