Available Now

Order now and be among the first to learn from Alternative Investing expert Bob Rice. Begin building your alternatives portfolio today! Order from Amazon.com, Barnes & Noble or 800-CEO-Reads

This episode aired on BloombergTV on Oct 17, 2012

Form 13D

Upon acquiring more than 5% of a class of publicly traded securities in a publicly traded company, activist investors are required to file a beenficial ownership report, or Schedule 13D. The Schedule 13D filing will be made publically available by the SEC via its EDGAR system.

Q. We had a merger arb guest on earlier, and we know this is a form that can indicate a merger may be coming down the road. What is it exactly?

A. It’s the form you have to file with the SEC if you’re an activist investor and go over 5% ownership of the target you have in mind. It’s a public document, so when you file it you’re essentially firing the starting gun. Lots of times, therefore, you very quietly vacuum up the first 4.9999% so you don’t run up the price before people know what you’re up to.

Q. So, everybody who goes over 5% has to file this?

A. No, only activists. If you’re a more boring investor, you file a 13G instead. Of course that’s also very valuable information, because often you’ll learn that the stock is under accumulation by a big institution, which can be a good sign. But activists have to file a 13D.

Q. And you said it’s a public document. Does that really mean that just anyone can find these things?

A. Absolutely yes. You can just go into the SEC’s system, called Edgar, on line and pull them up. In fact, you can search two ways: under a given company, or even by just putting “SC 13D” into the search box there… then, you’ll see which companies have recently had 13Ds filed. And if you’re really bored around the office one day, it’s kind of an amusing thing to do.

Q. Uh, amusing? I dunno, but I think I can imagine more fun things to do….

A. Well, here’s the thing. Pull up some 13Ds and then look at Item 4, which is the “purpose of transaction” section. That’s where the activist basically says what he’s trying to do, and usually why he’s trying to do it. There’s some absolutely great corporate gossip in there… allegations of improprieties by management, incompetence, etc. Good sport.

Q. I see. So Item 4 is the key provision? That’s where the investor says whether he’s trying to launch a proxy fight, initiate a takeover, change the CEO’s comp, or whatever.

A. Right. And remember that these forms have to be updated immediately when there’s any change. So you can immediately see that someone’s increasing or decreasing their position, that they’ve changed their intentions, etc. Good place to watch the corporate dramas unfold.