Influencing Control: Jawboning in Risk Arbitrage

Abstract

In an "activist risk arbitrage," a shareholder attempts to reshape an announced M&A through public campaigns, profiting from improved terms. Activists target deals with low premiums, and those susceptible to managerial conflicts of interest, including going-private deals and deals upon which CEOs receive outsized payments. Activist arbitrageurs are associated with a significant decrease in the probability that targets will be sold to the announced bidders, and an increase in the paid premium, both ex post on surviving deals and ex ante on all deals. Activist arbitrage serves as a governance mechanism in M&A and earns higher returns than passive arbitrage.

Keywords: Activist Risk Arbitrage; M&A; Governance

JEL Classification: G23, G34