A:

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.

RELATED FAQS
  1. Under what circumstances might a company decide to do a hostile takeover?

    Learn about why companies use a hostile takeover to gain control of another company, and understand the different methods ... Read Answer >>
  2. If a company offers a buyback of its shares, how do I decide whether to accept the ...

    Learn why it may often be in the best interest of a shareholder to accept a tender offer made at a premium to the market ... Read Answer >>
  3. 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 >>
  4. 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 >>
  5. What happens to the shares of a company that has been the object of a hostile takeover?

    Learn about the effect on the share price of companies that are targets of hostile takeovers, which are tactics used by famed ... Read Answer >>
Related Articles
  1. Investing

    What Is Schedule 13G Used For?

    Schedule 13G is an SEC form an investor must file upon taking ownership of 5% or more of a company’s outstanding shares.
  2. Investing

    Pinpoint Takeovers First

    Use these seven steps to discover a takeover before the rest of the market catches on.
  3. Investing

    13F Instead of 13D: Activists Make Smaller Purchases

    By purchasing smaller stakes in companies, former activist funds are making their strategies less transparent to outside investors looking for ideas.
  4. Small Business

    What is a Takeover?

    A takeover happens when one company makes a bid to acquire a target company.
  5. Investing

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  6. Investing

    Corporate Takeover Defense: A Shareholder's Perspective

    Find out the strategies corporations use to protect themselves from unwanted acquisitions.
  7. Investing

    Trademarks of a Takeover Target

    These tips on finding viable takeover targets can lead you to little companies with big prospects.
  8. Small Business

    How To Profit From Mergers And Acquisitions Through Arbitrage

    Making a windfall from a stock that attracts a takeover bid is an alluring proposition. But be warned – benefiting from m&a is easier said than done.
  9. Investing

    Keeping An Eye On The Activities Of Insiders And Institutions

    These transactions reveal much about a stock. We go over what to consider and where to find it.
RELATED TERMS
  1. SEC Schedule 13D

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

    A highly leveraged corporate buyout that is contingent upon the ...
  3. Takeover

    A corporate action where an acquiring company makes a bid for ...
  4. Yellow Knight

    A company that was once making a takeover attempt but ends up ...
  5. Parking Violation

    The illegal practice of an acquiring company concealing ownership ...
  6. Saturday Night Special

    An obsolete takeover strategy where one company attempted a takeover ...
Hot Definitions
  1. IRR Rule

    A measure for evaluating whether to proceed with a project or investment. The IRR rule states that if the internal rate of ...
  2. Short Covering

    Short covering is buying back borrowed securities in order to close an open short position.
  3. Covariance

    A measure of the degree to which returns on two risky assets move in tandem. A positive covariance means that asset returns ...
  4. Liquid Asset

    An asset that can be converted into cash quickly and with minimal impact to the price received. Liquid assets are generally ...
  5. Nostro Account

    A bank account held in a foreign country by a domestic bank, denominated in the currency of that country. Nostro accounts ...
  6. Retirement Planning

    Retirement planning is the process of determining retirement income goals and the actions and decisions necessary to achieve ...
Trading Center