Weeks after buying up a significant stake in Advisory Board (ABCO), activist investor Paul Singer and his Elliott Management has come to a standstill agreement with the health care company. Elliott purchased $130 million in stock of Advisory Board in January of 2017, accounting for about 8.3% of all outstanding Advisory Board stock. Analysts widely assumed that Elliott was looking to make an activist play on Advisory Board in the process; when an investor buys up a significant portion of all outstanding shares of a company's stock, it's typically seen as a move to be able to exert influence over that company's business practices thanks to the added clout of additional board member appointees. What does the standstill mean for Advisory Board and for Elliott Management's possible activist targeting?
Advisory Board Has Been in Trouble
Advisory Board has seen its share of trouble in the past few months. In the first days of 2017, the health care company was forced to fire more than 200 employees when its stock plummeted in price from $69 per share down to $36. The price dropped from a high point in 2013. Singer and Elliott Management bought into Advisory Board while the company's stock was at a record low, prompting an immediate climb of 16% to the stock price when the news of Singer's purchase hit the wider investment world.
While Singer may have anticipated being able to move in and exert greater control over Advisory Board's business strategies, it seems that the standstill agreement has put a pause to that plan for the time being. Elliott Management Corp. indicated in a statement on Friday of last week that it had entered into such an agreement with Advisory Board at that time, according to reporting by CNBC. Standstill agreements are specifically designed to stop the process of a takeover in this manner. In order to reach such an agreement, the target company must either make an offer to repurchase the shares held by the company looking to take over, or it must petition the bidder to limit its holdings in that company. In the case of the former situation, the new shareholder typically asks for a large premium on the stock that it recently purchased. What has happened in the case of Advisory Board and Elliott Management is unclear, but it does suggest that Advisory Board executives were not entirely happy with the idea of Singer coming in and exerting control.
Singer has received praise in the past for his activist investment strategies, but that is not to say that all companies are equally receptive to the idea of another firm coming in and buying up a seat at their board of directors table.