Barbara A. Bliss et al., Negative Activism, 97 Washington University Law Review (forthcoming)

  • Barbara A. Bliss et al., Negative Activism, 97 Washington University Law Review (forthcoming)

Shareholder activism has become one of the most important and widely studied topics in law and finance. To date, popular and academic accounts have focused on what we call “positive activism,” where activists seek to profit from positive changes in the share prices of targeted firms. In this Article, we undertake the first comprehensive study of positive activism’s mirror image, which we term “negative activism.” Whereas positive activists focus on increasing share prices, negative activists take short positions to profit from decreasing share prices.

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Influencing Control: Jawboning in Risk Arbitrage

In an “activist risk arbitrage,” a shareholder attempts to change the course of an announced M&A deal through public campaigns, and profits from improved terms. Compared to conventional (passive) risk arbitrageurs, activists target deals susceptible to managerial conflicts of interest (e.g., going-private and “friendly” deals) and deals with lower announcement premiums. Their presence increases the sensitivity of deal completion to market signals. While they block a significant proportion of planned deals, activist arbitrageurs only modestly decrease the probability that the targets will eventually be acquired (including by a third party). Finally, the strategy yields significantly higher returns than passive arbitrage.

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