What Is a Shark Watcher?

The term shark watcher refers to a professional or firm that specializes in the early detection of hostile takeovers. Shark watchers are hired by firms that are concerned about the possibility of being targeted by larger corporations. They monitor aspects of a firm's trading activity on the market such as who is accumulating shares and the number of shares acquired.

How Shark Watchers Work

Smaller companies and startups are often easy takeover targets for large corporations for a number of reasons. For instance, the target firm may have a product or service worth acquiring, the acquirer may want to tap into a new market, its business operations may align with the acquirer, or the target may be competing with the larger company.

When a company doesn't want to be taken over, the potential acquirer may decide to pursue a hostile takeover. This happens when the company behind the takeover tries to buy enough shares of the target on the open market or by purchasing shares from existing shareholders. Acquirers may also try to take control of the company and try to replace its management to approve the takeover.

Potential targets have to be vigilant in order to prevent themselves from being taken over. One way to do so is by hiring what the financial industry calls a shark watcher. The term is analogous to a large shark swimming around a body of water in search of smaller fish to swallow up. A shark watcher is a professional or company that monitors trading patterns in their client's stock and attempts to determine who is accumulating shares. That's because companies often initiate hostile takeover attempts by acquiring stock. A shark watcher can also be hired by a third party who is interested in possible risk arbitrage opportunities that may arise as a result of an attempted takeover. The shark water's primary business is usually the solicitation of proxies for client corporations.

Key Takeaways

  • A shark watcher specializes in the early detection of hostile takeovers.
  • Shark watchers are hired by firms that are concerned about being targeted by larger corporations.
  • Third parties interested in possible risk arbitrage opportunities that may arise as a result of an attempted takeover may also hire shark watchers.
  • They monitor aspects of a firm's trading activity on the market such as who is accumulating shares and the number of shares acquired.

Special Considerations

What happens when companies think they'll be taken over? Potential targets have a few options available to them when they believe another company may wish to take them over. Lines of defense range from poison pills to golden handshakes and golden parachutes. These tactics attempt to dissuade hostile parties who may show an interest in the potential target firm.

The poison pill defense raises the cost associated with takeovers by making the company's shares unfavorable. A golden handshake, which is negotiated well before a takeover, provides large severance packages to a company's key personnel. Golden parachutes, on the other hand, provide executives with a number of perks and benefits in the event of a takeover before they are terminated.

Example of Shark Watcher

Here's a hypothetical example to show how shark watchers work. Let's say Sesame Brokerage is a publicly-traded company that has a lot of valuable assets. The company's stock price has recently been depressed due to macro trends sweeping the industry. The company's management, shareholders, and board of directors are all concerned about being a takeover target. Sesame Brokerage hires Bert and Ernie's Shark Watchers Inc. to monitor the trading activity of Sesame Brokerage's shares on the open market. Shark Watchers Inc. will track firms that acquire shares of Sesame Brokerage and alert Sesame Brokerage to any possible takeover threats if and when an acquisition is made.