Imagine you're a CEO or board member of a publicly traded company and you get this letter, signed by two very powerful, very successful hedge funds:
We believe you should make a huge acquisition because the company as it stands won't deliver the returns we want (I.E. not BIG enough!). By the way, we own a huge stake in your company, and we WILL make it bigger. (Read between the lines: Do what we say, or else.)
SAC and Jana
Okay, that's an exaggeration (the XOXO part, at least). But if you're the board of TD Ameritrade , this sort of letter puts you in play whether you like it or not. This has become standard operating procedure for hedge funds. And that's why we pay so much attention to any big purchases of shares in any one company.
Consider Eddie Lampert's purchase of 15.2m Citigroupshares recently. No wonder the stock popped on the news. The billionaire hedge fund manager has bought sizeable stakes: Kmart (using that position to buy Sears), AutoZone and Autonation--all ultimately benefitting from Eddie's magic touch.
And Jana Partners has been busy being an activist hedge fund too. Take its purchase of 3.29m shares of Alcoa during the first quarter. That amounts to just 0.38% of total outstanding shares. But that didn't stop Jana from calling on Alcoa in May to drop its $26.9b takeover plan for Alcan and propose that AA put itself up for sale.
Stay tuned: it will be interesting to see how Ameritrade, and Toronto-Dominion with its 40% stake in AMTD, deal with the hedge fund heat.
PROGRAMMING NOTE: Confessions of a Con Man. Watch "Business Nation" tonight at 10pm EST, for my story on the ultimate Wall Street swindle--a hedge fund scam. The twist to this story: the con man was a 19-year-old NYU student who passed himself off as Turkish royalty. The ultimate damage: $7m in lost investor money (investors, by the way, worked at various hedge funds, including one I mentioned above) and $43m in counterfeit checks.
And visit the blog tomorrow for the juicy tidbits that ended up on the cutting room floor!
Questions? Comments? PowerandMoney@cnbc.com