What Is Acting in Concert?
Acting in concert is a slang term for when parties undertake identical investment actions to achieve the same goal. Acting in concert requires the cooperation of people or corporations to make the same transactions based on a previous arrangement.
- Acting in concert is a reference to the process of two or more parties teaming up together to reach the same result.
- In the financial markets, it refers to multiple investors who are working in tandem toward a financial outcome, such as establishing a controlling interest in a firm or outright taking over the company.
- Securities law requires that a party looking to take over or buy a commanding share in a company state those intentions publicly, after having bought up a certain percentage of the company's shares.
- Some investors will try to avoid hitting that percentage by spreading the purchases among a number of parties.
- This kind of action is acting in concert with another to hide the intention to purchase and is not legal.
How Acting in Concert Works
The issue of acting in concert is often examined in the world of acquisitions. Investors are usually required to declare any takeover intentions or place a tender offer after acquiring a specific percentage of shares in a company. However, some may try to spread the ownership percentage among friendly parties in an attempt to avoid declaring or bidding.
Regulators have determined that if people are acting in concert and the sum of ownership exceeds the specified percentage, the group must declare its intentions. If investors believe their interests were harmed by others acting in concert, they may sue. This happened in the following high-profile case that began in 2014.
Real-World Example of Acting in Concert
It was alleged that Bill Ackman, leader of the hedge fund Pershing Square Capital Management, and Michael Pearson, CEO of Valeant Pharmaceuticals International, acted in concert to try to purchase Botox maker Allergan Inc. in 2014. Ackman's fund independently accumulated a large position in Allergan and then teamed up with Valeant to bid for Allergan.
Allergan, which did not want to be acquired by Valeant, and two state pension plans sued Ackman and Valeant for violating securities laws on the grounds of insider trading. In the meantime, Allergan began putting together a deal with Actavis Plc to thwart efforts by Ackman and Valeant.
Actavis and Allergan did end up consummating a deal in March 2015, which delivered a huge investment gain to Ackman. He squandered those gains and more, however, after he reinvested the proceeds into Valeant, whose enormous debt levels and alleged fraudulent accounting practices sent investors fleeing. Valeant stock had soared over $250 per share in July 2015; when Ackman sold his shares in March 2017, they were trading at around $11 per share.
Adding insult to injury, Ackman was forced to finally settle the outstanding lawsuit against him, paying $193.75 million. Valeant agreed to pay $96.25 million, the other portion of the $290 million total settlement. Acting in concert with Valeant was a painful experience for Bill Ackman and Michael Pearson.