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A corporate raid is a business term, sometimes also referred to as breaking a company. It describes a particular type of hostile takeover in which the assets of the purchased company are immediately sold off (business liquidation). The target company essentially disappears in the process. Wall Street, Manhattan is the location of the New York Stock Exchange and is often used as a symbol for the world of business. ...
A takeover in business refers to one company (the acquirer) purchasing another (the target). ...
Liquidation, or winding up, refers to a business whose assets are converted to money in order to pay off debt. ...
This can be a profitable exercise if the company holds disposable assets or liquid investments that are valued higher than the company's current market capitalization. Examples would include companies holding valuable land or equipment, while their stock price is too low due to market factors. After taking a "hit" on their stock price for whatever reason, companies can become targets for a leveraged buyout. Market liquidity is a business or economics term that refers to the ability to quickly buy or sell a particular item without causing a significant movement in the price. ...
Market capitalization, often abbreviated to market cap, is a measurement of corporate size that refers to the current stock price times the number of outstanding shares. ...
A leveraged buyout (or LBO, or highly-leveraged transaction (HLT), or bootstrap transaction) occurs when a financial sponsor gains control of a majority of a target companys equity through the use of borrowed money or debt. ...
Examples of this is an insurance company whose "float" or "reserves" are larger than the market cap or a real estate company or trust whose real estate could be sold for a larger sum than what the market cap of the company is.
History
Corporate raids became the hallmark of a handful of investors in the 1970s and 80s who built up large lines of credit and were able to purchase huge companies for little or no cash, often through the issuance of junk bonds. These corporate raiders gained a reputation for destroying a number of well-run companies, although this may be somewhat overstating the issue. High yield debt (non-investment grade or junk bond) is a business term referring to a corporate debt instrument, usually a bond, that has a higher yield (compared to investment grade debt) because of a high perceived credit risk (default risk). ...
However, the era of the corporate raider appears to be largely over. In the later 1980s the famous raiders suffered from a number of bad purchases that lost money (for their backers, primarily) and the credit lines dried up. In addition, corporations became more adept at fighting hostile takeovers through mechanisms such as the poison pill. Finally, in the 1990s the overall price of the American stock market increased, which reduced the number of situations in which a company's share price was low with respect to the assets that it controlled. Poison pill began as a reference to literal poison pills (often glass vials of cyanide salts) carried by various spies throughout history, and by Nazi leaders in WWII. Spies could take such pills when discovered, eliminating any possibility that they could be interrogated for the enemys gain. ...
After the dot-com bubble burst, there was another wave of corporate takeovers. This time, they were called "vulture capitalists" (a pun on venture capitalists). They bought up dot-com companies in which the stock was very low and then sold out the inventory like desks, Aeron chairs, computers and espresso machines. The Dot-com bubble (or dot-com speculative bubble) refers to the approximately four years of time (1997–2001) in which stock markets in Western nations had their value increase rapidly and most significantly in the technology and new Internet sector. ...
Venture capital is a general term to describe financing for startup and early stage businesses as well as businesses in turn around situations. ...
A desk is a furniture form and a class of table. ...
Detail of Aeron chair seat The Aeron chair is a product of Herman Miller, designed in 1994 by Don Chadwick and Bill Stumpf. ...
A Lego RCX Computer is an example of an embedded computer used to control mechanical devices. ...
An espresso machine is used to produce the traditionally Italian coffee beverage called espresso. ...
Analysis Opponents of the corporate raid argue that this typically occurs only to well-run companies who are successfully managing their money. In addition, they argue that corporate raids cause large economic disruption and create unemployment as factories are sold off and closed. Proponents of the corporate raid argue that companies which have huge assets and low stock prices are not managing their money well and should either attempt to regain market confidence (thereby boosting their share prices) or else liquidate some of their assets and return the money to their shareholders.
Some believe that one side effect of the corporate raiding era is that companies are much more defensive, which many argue is not a good thing for the economy. Others argue that corporate raids prevent corporate managers from becoming too complacent and serve to redistribute capital from weaker sectors to more productive sectors of the economy. In particular, some argue that the apparent superior performance of American companies in the 1990s in comparison with German or Japanese companies arose because the latter companies are protected from corporate raids.
In fiction Just prior to this time, the corporate raid became a hot topic in the United States, to the point where a fictionalized corporate-raiding character named Gordon Gekko (played by Michael Douglas) formed the basis of the popular movie Wall Street, in which Gekko intended to take control of an airline in order to profit from its over-funded pension, with complete disregard to the loss of jobs or other people factors involved in the deal. Jerry Sterner wrote a play called Other People's Money which in 1991 was made into a movie starring Danny DeVito as "Larry the Liquidator." Corporate raiders of a sort were also featured in Monty Python's 1983 film The Meaning of Life. Richard Gere played a character in the film Pretty Woman who built up his wealth via corporate raids. Gordon Gekko is a fictional character from the popular movie Wall Street. ...
Douglas at the Cinedom Movie Theater in Cologne, Germany, January, 1997 For other uses, see Michael Douglas (disambiguation). ...
To meet Wikipedias quality standards, this article or section may require cleanup. ...
The examples and perspective in this article or section may not represent a worldwide view. ...
The introduction of this article does not provide enough context for readers unfamiliar with the subject. ...
Danny DeVito as Louie in Taxi. ...
The Python team. ...
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Monty Pythons The Meaning of Life is a comedy film made in 1983. ...
Richard Tiffany Gere (born August 31, 1949) is an American actor. ...
Pretty Woman is an American romantic comedy motion picture that was one of the top films at the box office in 1990. ...
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