What is a 'Dawn Raid'

During a dawn raid, an investor acquires a substantial number of shares in a company first thing in the morning, just as the stock market is opening for business. Because the bidding company builds a substantial stake in its target at the prevailing stock market price, any takeover costs are likely to be significantly lower than they would have been had the acquiring company made an announcement of intention prior to acquiring a position in a target.

BREAKING DOWN 'Dawn Raid'

Like the dawn raid in war, the corporate dawn raid is done early in the morning, so by the time the target realizes it's being attacked, it's too late — the investor has already scooped up a meaningful controlling interest position. However, only a minority interest in a firm's shares can be bought this way, as a position greater than 5% requires formal documentation. So, after a successful dawn raid, the raiding firm is likely to make a takeover bid to acquire the rest of the target company.

In theory, a dawn raid should allow a target entity to be purchased at a discount before news breaks of an acquirer's interest in a takeover target. In practice, however, many developed markets enjoy a level of market efficiency that makes it difficult to execute a dawn raid without outsiders knowing of it already. High-frequency trading and other algorithm driven investment strategies further complicate anonymity. As such, empirical results are mixed.

The growth and flexibility of financial instruments further distort the traditional definition of a dawn raid. For instance, many instruments might be available in OTC or off-exchange markets. Futures and options can be purchased "pre-market."

Another consideration is brokerage service level. Popular discount brokers do not "fill" market orders immediately. If speed of execution is required, more expensive full-service brokers may be required.

RELATED TERMS
  1. Takeover

    A corporate action where an acquiring company makes a bid for ...
  2. Blitzkrieg Tender Offer

    A takeover offer that is intended to be so attractive that very ...
  3. Hostile Takeover Bid

    A hostile takeover bid occurs when an entity attempts to take ...
  4. Target Firm

    A target firm is an attractive business for a merger or acquisition ...
  5. Acquisition

    An acquisition is a corporate action in which one company buys ...
  6. Hostile Bid

    A specific type of takeover bid that is presented directly to ...
Related Articles
  1. Investing

    Mergers and acquisitions: Understanding takeovers

    In the language of mergers and acqusitions, battleground terms meld with bizarre metaphors to create a unique vocabulary.
  2. Investing

    South Korean Prosecutors Raid Samsung Offices (SSNLF)

    A criminal investigation of South Korean President Park Geun-hye and a close associate led prosecutors to sweep the offices of Samsung on Wednesday.
  3. Investing

    The Uptick Rule Debate

    This rule was deemed ineffective and repealed in 2007, but critics argue it protects the market from bear raids.
  4. Personal Finance

    Most Americans Lack an Emergency Fund

    A recent study reveals that two-thirds of Americans can't come up with $1,000 for emergency expenses.
  5. 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.
  6. Retirement

    Providing For a Special Needs Child - Part III

    When set up properly, a special needs trust can keep funds from interfering with Social Security.
  7. Investing

    What Investors Can Learn From M&A Payment Methods

    How a company pays in a merger or acquisition can reveal a lot about the buyer and seller.
  8. Insights

    How Did Carl Icahn Get Rich?

    Carl Icahn became wealthy as a corporate raider by buying large stakes and manipulating the company's decisions to increase its shareholder value.
  9. Trading

    First Solar Stock Showing Unusual Strength

    First Solar stock is holding close to harmonic resistance in the low $60s despite recent bear raids, raising odds for a healthy breakout.
  10. Investing

    Mondelez Is Selling Oreos Without a Middleman

    Since the dawn of American retail, the formula has been pretty simple: Vendors supply stores, and those retailers act as middlemen to deliver product to consumers. Since the internet has risen ...
RELATED FAQS
  1. How can a company buy back shares to fend off a hostile takeover?

    Learn about why a business might use a stock buyback to thwart a hostile takeover attempt by reducing its total assets and ... Read Answer >>
  2. How can a company resist a hostile takeover?

    Learn about some of the defensive strategies a public company's board of directors might utilize to prevent a hostile bidder ... Read Answer >>
  3. What is a stock-for-stock merger and how does this corporate action affect existing ...

    First, let's be clear about what we mean by a stock-for-stock merger. When a merger or acquisition is conducted, there are ... Read Answer >>
Hot Definitions
  1. Return On Equity - ROE

    The profitability returned in direct relation to shareholders' investments is called the return on equity.
  2. Working Capital

    Working capital, also known as net working capital is a measure of a company's liquidity and operational efficiency.
  3. Bond

    A bond is a fixed income investment in which an investor loans money to an entity (corporate or governmental) that borrows ...
  4. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth rate of an investment over a specified period of time longer ...
  5. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
  6. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
Trading Center