SEC Eyes Faster Disclosure for Activist Funds

Move could hurt hedge fund campaigns; help firms prepare defenses

By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) — The Securities and Exchange Commission may soon require activist hedge fund managers to disclose more quickly the stakes they take in companies whose management they are trying to shake up.

The agency effort would also likely make it easier for retail and arbitrageur investors to jump on the bandwagon and purchase shares in companies targeted by activists at the same time as it makes it more difficult for insurgents to accumulate the stake they believe they need to be profitable in their campaigns.

Currently, activist investors must submit a public Schedule 13D filing to the SEC within 10 days of owning more than 5% of the stock of a public company when they have plans to communicate some strategic option for the firm, such as seeking to influence the control of the company. (Those who pass the 5% threshold but on a passive basis file a Schedule 13G filing.)

However, Michele Anderson, chief of the SEC’s Office of Mergers & Acquisitions, told MarketWatch that she has plans to recommend to the commission that they should shorten the number of days activist investors have before they must publicly disclose they have a 5% stake in the company. Existing time-frames for disclosure have been in place since 1968 as part of the Williams Act.

“The staff believes that period may be outdated, it has been in place for over 40 years now, and we have concerns that It may provide opportunities for investors to obtain a sizeable stake in the company before they are obliged to make any public disclosure,” Anderson said.

The expected move comes as activism is surging. Insurgents typically by large minority stakes in companies they deem to be undervalued and push for mergers, special dividends or governance changes that include board shake-ups and CEO pay alignment. Some 70 companies have already been targeted by activist investors in 2011, according to Damien Park, managing partner at Hedge Fund Solutions Inc.,a Philadelphia-based consulting firm.

Activist investor William Ackman spearheaded an insurgent campaign at J.C. Penney Co. (NYSE:JCP)  in...
Read the entire story at MarketWatch