Acting In Concert
When two or more parties perform the same investment strategy based on a common objective.
Acting in Concert Details
In common usage, acting in concert simply means two or more parties working together towards a shared goal. In business, it can refer to a group of different investors with the same interest in a particular result, working together to achieve this result. An example of this would be the taking over of a company.
Under most circumstances, a single investor, whether an individual or company, has to declare an intention to take over a company once in control of a specific percentage of shares in that company. However, some investors may attempt to circumvent this requirement by working in tandem with other investors so that, together, they reach the percentage of shares required. Such an action requires considerable confidence and trust in the other members of the purchasing group.
There are various reasons why an investor would act in concert with others, lack of sufficient funds is one, but another might be an attempt to avoid reporting regulations; if this is the case, it is illegal.
Example of Acting in Concert
Mega and Acme produce a large percentage of the world's supply of an important vaccine. Over the years, both companies have invested heavily in the research and development of this vaccine, and both have produced an effective product that retails at a similar price. Mega holds many shares in Acme and wants to take control of its biggest competitor, but a direct bid for control would certainly face opposition from regulators. The board at Mega decides that it cannot attempt a direct bid.
The chairman of Mega is friendly with the owner of an investment fund. In a private meeting, the chairman persuades his friend to buy shares in Acme. The total number of voting shares that Mega and the investment company own in Acme give the two of them a controlling interest. In reality, Mega controls all of these shares and can dictate terms to its competitor.
Mega's long-term objective is not to dissolve Acme but to turn it away from vaccine production. Acme will be free to concentrate on aspects of its business in which Mega has no presence, but the production of the vaccine will become Mega's territory. This will ensure that Mega's profits will increase considerably, an increase that will be even greater should Acme prove successful in its new field of business.
Significance of Acting in Concert
Pershing Square Capital Management and Valeant Pharmaceuticals are two institutions that acted in concert in an attempt to purchase Allergan Inc. Allergan sued Pershing Square's leader and Valeant for violating securities laws. Allergan eventually won the subsequent lawsuit, and the judge ordered Pershing Square's leader and Valeant to pay a settlement of $290 million. The cost of trying to evade security laws by acting in concert and not declaring the intention behind the strategy can be a high one.
The cost to Pershing was, in fact, much higher. It had bought shares in Valeant at around $161 in 2015. When Pershing finally divested itself of the last shares it held in Valeant, it sold them at just $11.