Takeover Artist

What Is a Takeover Artist?

A takeover artist is an investor or a company whose primary goal is to identify companies that are attractive to buy and that can then be turned around to make a quick profit. A takeover artist will usually use a lot of debt (leverage) to make the purchase, and restructure the company for resale or add the company to an existing group of companies. Private equity firms that conduct leveraged buyouts (LBOs) are often viewed as such takeover artists.

Takeover artists such as private equity firms can be seen as creating market efficiency by turning around struggling companies or enhancing their value. Critics, however, have voiced concern over the layoffs generated through corporate restructuring and a lack of concern about what the company actually does or produces. Most of the time, takeover decisions are reduced entirely to an analysis of numbers and data.

How Takeover Artists Work

Takeover artists are in the business of buying undervalued companies or struggling firms with signs of promise if only the right team were at the helm. The goal is to fix the broken company or reveal its true value and then sell them to an acquirer or to the public via an initial public offering (IPO), in a relatively short period of time.

Sometimes a takeover target's board or shareholders are not interested in being bought and restructured. When takeover artists persist against objections, the situation is considered a hostile takeover. Companies have developed several strategies to attempt to thwart the efforts of takeover artists and 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."

Example of a Takeover Artist

Takeover artists are also sometimes referred to as corporate raiders. T. Boone Pickens, Jr. of the Getty Oil takeover fiasco comes to mind. Frequently, the reason for a takeover is to remove entrenched management that the corporate raider believes is incompetent.

For example, in the 1980s, Carl Icahn (a well-known takeover artist), launched a takeover of Trans World Airlines (TWA) and turned the company from an unprofitable company to a profitable one in a few short years. He took the company from a loss of $193 million in 1985 to a profit of $106 million in 1987, and over $300 million the next year. However, it was short-lived, as Trans World Airlines posted a $298 million loss in 1989 and ultimately the company filed for bankruptcy in 1993.