Definition
A Corporate Raider is an investor who buys a large number of shares in a corporation whose assets appear to be undervalued. The large stake gives the raider significant shareholder rights and influence over the corporation. Their goal is typically to gain control of the company’s board and then initiate measures to increase shareholder value, such as breaking up the company or replacing its management.
Key Takeaways
- A Corporate Raider is an investor who buys a large number of shares in a corporation whose assets appear to be undervalued. The large share purchase would give the corporate raider significant voting rights, which could then be used to push changes within the company.
- In the past, Corporate Raiders were often seen in a negative light, as their actions were perceived as hostile and their intention was often to make substantial profits from their actions, potentially at the expense of the company and its employees.
- However, some argue that the actions of corporate raiders can turn around struggling companies and lead to more efficient business practices. This is because the raider might reduce inefficiencies or sell off underperforming sections of the company.
Importance
The term “Corporate Raider” holds significance in the world of finance as it refers to an individual or firm that purchases large amounts of a targeted company’s stock and later, pushes the company’s management to implement reforms that could increase the stock’s value.
This strategy can lead to drastic changes in the targeted company’s business practices and policies, which could in turn influence the broader financial market.
Corporate Raiders are seen as potential threats by the management of established companies, but they can also be viewed as catalysts for beneficial reforms, leading to increased efficiency and profitability.
Therefore, the activities of Corporate Raiders can have vast impacts on company governance, shareholder values, and overall market dynamics, making it a crucial concept in the realm of finance.
Explanation
A corporate raider is an investor or a business entity who aims to amass substantial benefits by purchasing large amounts of a company’s stock and using the clout of such sizeable ownership to wield influence. This could take various forms such as forcing changes in the company’s management or practices, pushing for assets sale, or strategizing a takeover.
The motivation is often profit optimization, whereby the corporate raider identifies underperforming or undervalued companies with the potential for significant value improvement. In essence, the corporate raider’s purpose is maximizing shareholder wealth, in this case, primarily their own.
They typically leverage buyouts, using debt instruments to buy the stock, with the aim of later selling it at a handsome profit after executing turnaround strategies. They are known for their aggressive methods, markedly distinct from traditional investment approaches.
Contrarily, it is worth noting that while the term ‘corporate raider’ is often used pejoratively, their actions could sometimes result in beneficial change, compelling complacent companies to reassess and juke up their operational strategies.
Examples of Corporate Raider
Carl Icahn: A notorious corporate raider of the 1980s, Carl Icahn made his name through his attempted takeover of companies such as TWA, Blockbuster, and RJR Nabisco. He would acquire substantial stakes in these companies, then force changes in management practices to increase shareholder value, sometimes even advocating for the sale of the company to the highest bidder.
T. Boone Pickens: Oil and gas executive T. Boone Pickens started as a wildcatter and became one of the most well-known corporate raiders in the 1980s. His attempts to take over major oil companies such as Gulf Oil, Unocal, and Pioneer Corporation often resulted in buybacks by the company or buyouts by other entities at significant premiums. His endeavors were meant to spotlight the inefficiencies in these companies and generate profits for his shareholders.
Ronald Perelman: Perelman is another big name in the corporate raider’s world. He targeted underperforming companies with strong cash flows through his holding company MacAndrews & Forbes. His most notable deal was the takeover of Revlon in
Perelman utilized leveraged buyouts to gain control, sell off portions of the businesses for profit, and restructure the remaining operations for increased profitability.
FAQs about Corporate Raider
What is a Corporate Raider?
A Corporate Raider refers to an individual or organization that aims to acquire a significant amount of a company’s stock shares. With a substantial stake, they seek to gain control of the company for various possible reasons such as restructuring the management or selling off the company assets for profit.
What are the methods used by Corporate Raiders?
Corporate Raiders typically use methods like buying shares in the open market, making a tender offer, or initiating a proxy fight. The objective is to assert control or pressure on the company to bring necessary changes in its operations or management.
How can a company protect itself against Corporate Raiders?
There are various strategies a company can use against Corporate Raiders. These include implementing a shareholder rights plan, staggering the terms of board members, or placing restrictive clauses in the company charter that make a takeover more difficult.
What is the impact of Corporate Raiders on a company?
The impact may vary depending on the intentions of the Raider. If the Raider seeks structural improvements, the changes could potentially benefit the company and its stakeholders. However, if the Raider plans to break up and sell off parts of the company for profit, it may lead to job losses and substantial shifts in the company structure.
Are Corporate Raiders legal?
While the term “Corporate Raider” sometimes has negative connotations, the action of buying shares in a company with the intent to control or influence its operations is legal. However, the raider’s actions are subject to regulations to prevent fraudulent or anti-competitive behaviors.
Related Entrepreneurship Terms
- Hostile Takeover
- Shareholder Rights Plan
- Greenmail
- Leveraged Buyout
- Proxy Fight
Sources for More Information
- Investopedia: An extensive resource providing definitions, explanations and examples of various finance and economic terms, including Corporate Raider.
- The Balance: It offers comprehensive articles about everything finance-related, including Corporate Raider. It also focuses on providing advice for personal finance management.
- Bloomberg: A global leader in business and finance news, Bloomberg offers daily updates, opinion pieces, and in-depth articles about various finance subjects, including the concept of Corporate Raider.
- Financial Times: It is known for its in-depth analysis of global business, economic, and political news. The site also carries articles and opinions on various finance subjects including Corporate Raiders.
