Dawn raids are takeover attempts that occur early in the morning of a business day. These attempts usually begin with the purchase of stock as the market opens, allowing the raider to amass a significant amount of stock before the action is noticed. The idea is to gain as much interest in the target company as possible before there is any opportunity to initiate any type of resistance, and thus increase the chances of successfully taking over the target.
Preparing for a dawn raid usually begins days before the actual event takes place. During that time, the raider will design a plan to purchase shares of stock from various sources. In many cases, this may involve approaching shareholders on weekends or overnight, obtaining their commitment to sell, then executing the sales as soon as the market opens the next business day.
The general process of the dawn raid is often likened to raids during wartime or the raids that occurred in feudal societies in centuries past. Many of the fanciful terms associated with the modern dawn raid are drawn from those eras. For example, the target company is sometimes referred to as a sleeping beauty, since the business is unaware of the takeover attempt that is about to commence. The black knight denotes the corporate raider who is attempting the hostile takeover. In some instances, the assets of the target company are identified as crown jewels, especially when the intent of the raider is to acquire the company, then sell off its assets.
As with many business strategies, the dawn raid can either be successful or be blocked. In the event that some of the investors approached prior to the actual raid choose to relay news of the attempt to the board of directors or other key officers of the target company, they may in turn instigate their own counter-attack. This sometimes takes the form of buying shares back from investors as well as obtaining commitments from other key investors to not sell to the raider. Depending on the laws that govern acquisitions, the target company may also be able to utilize legal means to stall the raid, at least long enough to regroup and consider various methods to overcome the takeover attempt. Generally, a dawn raid has the most success of working when the target has no idea of what is happening, and when the raider is able to acquire a substantial percentage of outstanding shares before the action is noticed.