What is a Corporate Raider?
Corporate raiders are investors who engage in the act of directed or orchestrating a hostile takeover of a company. Sometimes referred to as a company breaker, the raider often will go after a corporation, with an eye toward selling off the various assets of the company as a means of generating a huge profit.
In order to effectively engage in corporate raids, the raider must have solid financial backing and a clear strategy on how to go about acquiring and then systematically dismantling a corporation in order to generate enough revenue to cover the investment and realize a profit. This requires the raider to have a finely tuned sense of which companies are in a position that is vulnerable enough to allow for the gradual acquisition of control, but still has enough stability and assets to be a desirable target. Generally, this means the company will have an equitable amount of liquid assets or disposable assets, but may be undergoing a slump in their stock price for some reason. The ability of the corporate raider to come in and purchase enough shares of stock to gain control is crucial to the success of the project.
Once the raider has controlling interest in a company, it is usually a relatively easy process to convince other stock holders to either go along with the process of company breaking, or to buy the remaining shareholders out. At this point, all obstacles to selling off assets is removed, and the corporate raider can begin dispose of land, equipment, buildings, and any other assets that need to be converted into cash. In some cases, this means the closing of production facilities and the end of operations for the company. At other times, the corporate raider may strip the company of many assets, but leave a shell that is still capable of operation, albeit on a much smaller scale. The remaining operation and related facilities may then be sold off, completing the process of breaking the company.
The successful corporate raider will easily be able to recoup all expenses involved in acquiring control of the company, and still realize a handsome profit for the time and effort. For persons who make a living in this field, a portion of the profit is pumped back into the operating capital that will be necessary to fund future raids.
During the 1980s and 1990s, conditions were often ideal for the corporate raider to make huge profits from his or her endeavors. However, not all attempts were successful. In some cases, a corporation could sidestep the hostile takeover by converting shares to employee stock ownership plans and putting the company into the hands of a holding company that was established to oversee the process. This placed the corporate raider in a position where he or she had to either agree to the change or lose money on the public shares that had been acquired up to the time of the conversion to the ESOP.
One intriguing thing about corporate raiders is the cultural impact they had on the 1980s. By the end of the decade, these guys were often viewed by the public as villains. Take Gordon Gekko in the film "Wall Street," for example. He was the "greed is good" guy who was named after a lizard and was about as moral and trustworthy as one.
Also by the end of the 1980s, companies put a lot of countermeasures in place to thwart corporate raiders. Those raiders were feared and regarded as best avoided.
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