It is alleged that activist hedge funds congregate around a common target, with one acting as the "lead" activist and others as peripheral activists, or "wolf pack" members. We model this phenomenon as a coordination game, and show that the concentration of capital and skill matters: Holding constant total activist ownership, the presence of a lead activist increases the probability of successful activism due to improved coordination among activists. We model the dynamics of share acquisition by wolf pack members and the lead activist: Block acquisition by the lead activist spurs significant entry by wolf pack members, while the lead activist acquires only if the expected wolf pack is large enough. Finally, we provide predictions concerning which wolf pack activists will buy ahead of the lead activist, and which will wait to acquire until after the lead activist's stake is announced.
Financial Markets Group Discussion Papers DP 742
Paul Woolley Centre Discussion Papers No 46