And furthermore ... (regarding institutional share ownership as a useful defense against unwanted "suitors") let me repeat a concept that a friend of mine (who runs a hedge fund involved in risk arbitrage) once told me.
If you try to "intellectualize" why it is that a risk arbitrageur can make so much money, one way to do it is as follows :
Mutual fund A owns QCOM at an average cost of $55 a share, because they wanted to make a bet on CDMA wireless. QCOM goes up to $110-ish on various developments.
Then (hypothetically) some douchebag company launches a hostile tender offer for Qualcomm at $200 a share. QCOM jumps to $185.
Fund A then makes a "portfolio decision," based on several factors including : Qualcomm is now (undoubtedly) a larger percentage of the mutual fund's total assets -- possibly over some "magic number" level in the mutual fund's charter (or, whatever they call it).
Also, the upside and downside could now be perceived as : (with no additional bidders) $200 in a few months if everything actually happens, OR (probably) $130 or so if the attack goes away somehow.
Even though Fund A believes that if they hold on to their Qualcomm shares with the going price at $185, and then QCOM does go back to $130, that Qualcomm will eventually exceed $185 a share, they would probably still sell some or all of their position.
Guess where their shares sold go ? Into the hands of the risk arb players.
Eventually, the dynamics of who owns what start flip-flopping towards the "hot money" risk arbs controlling a lot of shares, and the die hard people (like us) owning less and less.
At some price level, a takeover is sort of inevitable. But, if the management of the target has explained things well enough, it can be at a high enough price so that it was a huge mistake for the suitor (check out almost every acquisition that AT&T has made, for some examples).
(Another way to put this whole thing -- Mutual Fund A is NOT in the risk arbitrage business, and therefore "exits" some or all of its massive share position once something becomes a risk arb situation only).
Jon. |
