What is a Corporate Raider
A corporate raider is an investor who buys a large number of shares in a corporation whose assets appear to be undervalued. The large share purchase would give the corporate raider significant voting rights, which could then be used to push changes in the company's leadership and management. This would increase share value and thus generate a massive return for the raider.
BREAKING DOWN Corporate Raider
Corporate raiders may use a variety of tactics to affect the changes they desire. This can include using their voting power to install handpicked directors to the board. They could also buy up the outstanding shares under the pretense of pushing for changes the current leadership is not amenable to, but then offer to sell back those shares at a premium price in order to turn a profit for themselves.
Other motivations for corporate raiders can include positioning the company for a sale or merger that they believe will provide a lucrative return. Such action may come in response to existing leadership at the company rejecting acquisition offers that the corporate raider believed were suitable and sufficient. A corporate raider might want to see certain assets and business lines divested from the company, possibly to unlock the value of the asset or to remove a detriment to the company’s bottom line. That could include eliminating offices and production facilities that are costly to maintain. A corporate raider may simply want to reduce the headcount of a company as a means to increase its profitability, which in turn could be a step towards preparing the company for a sale.
Why Corporate Raiders Face Opposition
The actions and intentions of a corporate raider may be seen as disruptive from the current management’s perspective as it attempts to continue doing business while facing challenges for control of the company. Though corporate raiders seek to make changes that somehow improve the company, their ultimate motives can remain very personal.
Companies have used a variety of strategies to thwart the efforts of corporate raiders. These include shareholders' rights plans (poison pills), super-majority voting, staggered boards of directors, buybacks of shares from the raider at a premium price (greenmail), dramatic increases of the amount of debt on the company's balance sheet and strategic mergers with a "white knight."
Famous corporate raider Carl Icahn used tactics such as taking a company private, compelling a spin-off, calling for an entirely new board of directors or calling for a divestiture of assets to make a fortune with his hostile takeovers.