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Banking

Memo: "Be Prepared For Attacks By Hedge Funds"

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________________________________________________________________________________________________________________

Wachtell, Lipton, Rosen & Katz

 

                                                                                                                                December 21,2005

 

Be Prepared For Attacks By Hedge Funds

 

                                In this environment of attacks by hedge funds, including against some of our largest and most well-known companies, it is more critical than ever for companies to be prepared. Companies need to:

 

  • Be acutely aware of where they stand in relation to their peers. Relatively poor performance, regardless of the reason, can make one an easy target.

 

  • Consistently articulate the company’s business and financial strategy in a way that is meaningful and understandable.

 

  • Carefully monitor analyst reports, particularly for suggestions of strategic changes the company could make. Company officials must be careful when discussing potential strategies with analysts, and “half-baked” ideas for the company’s strategic direction must be refuted or otherwise addressed immediately. Frequently, hedge funds are “turned on” to a company by an analyst who one way or another got an idea for a way to get a quick increase in the price of the stock.

 

  • Have in place sophisticated stock watch programs which alert management to new large stockholders and non-ordinary course patterns of stock purchases.


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