A Schedule 13D is significant because it provides investors with useful information about majority ownership in the company. It tells the name, ownership amount and intentions of any investor who has purchased more than 5% of a company. Schedule 13D lists everything an investor could want to know, including the intentions behind the buy and how the buy is funded. Because of this, the schedule 13D has taken on more significance as a takeover indicator in the years since its creation.

Generally speaking, an acquiring company in a friendly takeover will make a tender offer before acquiring any significant or additional holdings of the target company. In a hostile takeover, however, the acquiring company will often take up a toehold purchase beneath disclosure levels. When the funding is in place, as with a leveraged buyout (LBO), the black knight will buy in and file the Schedule 13D and the tender offer simultaneously. This keeps competitors from buying and making the acquisition more expensive while also preventing the target from putting up takeover defenses. (For more on types of takeover defenses, refer to our article on Corporate Takeover Defense.)

Investors and arbitrageurs often turn to the 13D to judge the chances of a success for an acquisition. Because the funding sources are disclosed, it's easier to see whether the acquiring company is overleveraging itself. This can have a big impact on the future earnings of both companies if the deal goes through.

There is a separate Schedule 13G filing for entities that acquire between 5% and 20% without intending a takeover or anything that will materially impact the company's shares. If the investor is not passive or the ownership is over 20%, they would have to file a Schedule 13D. Sometimes mutual funds and insurance companies find themselves over the 5% margin simply because of the size of their investments.

  1. How long does it take to execute an M&A deal?

    Even the simplest merger and acquisition (M&A) deals are challenging. It takes a lot for two previously independent enterprises ... Read Full Answer >>
  2. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>
  3. What are some common accretive transactions?

    The term "accretive" is most often used in reference to mergers and acquisitions (M&A). It refers to a transaction that ... Read Full Answer >>
  4. Are companies with high Book Value Of Equity Per Share (BVPS) takeover targets?

    Companies with high book value of equity per share (BVPS) can be good takeover targets if those companies are public and ... Read Full Answer >>
  5. What are some ways to make a distribution channel more efficient?

    While there are many ways to make a distribution channel more efficient, the three high-level ways to increase the efficiency ... Read Full Answer >>
  6. If a company offers a buyback of its shares, how do I decide whether to accept the ...

    Tender offers for share buybacks are often made at a premium to the current market price; it may be in an investor’s best ... Read Full Answer >>
Related Articles
  1. Markets

    10 Most Famous Leveraged Buyouts

    Learn about the boldest, riskiest leveraged buyouts in history and how they either become famous for failing miserably or making billions.
  2. Stock Analysis

    Is There Any Upside Left for Walgreens?

    Walgreens is about to get much bigger, but does bigger equal better in this case?
  3. Stock Analysis

    Top 10 Companies Owned by Amazon

    Learn about what has made Amazon so successful over the years. Learn about 10 of the most important companies that Amazon has acquired.
  4. Fundamental Analysis

    ABInBev and SABMiller Merger: The Facts

    Beer is a big business. In the United States, beer sales generated more that $101 billion in revenue.
  5. Investing News

    Does the Dell/EMC Deal Make Financial Sense?

    Last week, Dell announced it would be buying IT provider EMC in a $67 billion deal, making it the largest technology deal ever.
  6. Fundamental Analysis

    2 Thrift Conversions for Your Portfolio

    Buying the stocks of these boring little banks can lead to very exciting profits.
  7. Investing

    Casella Waste Faces Activist Pressure

    Casella has a valuabe collection of assets that activist investor JCP Investment Management believes are mismanaged.
  8. Economics

    What are Acquisition Costs?

    A company can recognize acquisition costs as those costs used to buy property and equipment.
  9. Fundamental Analysis

    Regional, Community Bank Stocks the Next Big Thing

    The very best opportunities are often in the less exciting stocks and sectors. Community banks may not be sexy, but they can be very profitable investments.
  10. Professionals

    Hard and Soft Due Diligence: What's the Difference?

    Learn about the differences between "hard" and "soft" due diligence in a mergers and acquisitions deal (M&A) and why soft diligence is increasingly important.
  1. Skinny Down Distribution

    Skinny down distribution is corporate practice of slimming down ...
  2. Letter of Intent - LOI

    A document outlining the terms of an agreement before it is finalized. ...
  3. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a ...
  4. Runoff Insurance

    An insurance policy provision that provides liability coverage ...
  5. Hunting Elephants

    The practice of targeting large companies or customers.
  6. Precedent Transaction Analysis

    A valuation method in which the prices paid for similar companies ...

You May Also Like

Hot Definitions
  1. Take A Flier

    The slang term for a decision to invest in highly speculative investments.
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center