Toehold Purchase

DEFINITION of 'Toehold Purchase'

A purchase of less than 5% of a target company's outstanding stock made by an acquiring company. A toehold purchase of just under 5%, while not a significant stake in a firm, allows the shareholders a "toe-holds" grip on the company and its decision making. In the instance of a shareholder vote, toehold shareholders hold a significant place in such votes.

BREAKING DOWN 'Toehold Purchase'

Companies are free to purchase up to less than 5% of any company. But once a company purchases 5% or more of another company, the acquirer must file a form 13D with the SEC and explain to the target firm in writing the reason for the purchase of 5% or more of its stock. Filing a form 13D additionally notifies the public of what the company is intending to do with its toehold purchase, and may be a precursor to a hostile takeover.

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RELATED FAQS
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    A Schedule 13D is significant because it provides investors with useful information about majority ownership in the company. ... Read Answer >>
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    Learn about why companies use a hostile takeover to gain control of another company, and understand the different methods ... Read Answer >>
  3. What's the difference between a merger and a hostile takeover?

    Understand the difference between a merger and a hostile takeover, including the different ways one company can acquire another, ... Read Answer >>
  4. What happens to the stock prices of two companies involved in an acquisition?

    When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. ... Read Answer >>
  5. How can a company buy back shares to fend off a hostile takeover?

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