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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.

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  1. Schedule 13D

    A form that must be filed with the SEC under Rule 13D. The form ...
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  3. SEC Schedule 13D

    A report that must be submitted to the Securities and Exchange ...
  4. Takeover

    A corporate action where an acquiring company makes a bid for ...
  5. Toehold Purchase

    A purchase of less than 5% of a target company's outstanding ...
  6. Busted Takeover

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