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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. Business refers to at least three closely related commercial topics. ...
A takeover in commerce refers to one company (the acquirer) purchasing another (the target). ...
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 cap. 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, mkt. ...
A leveraged buyout (or LBO) 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 is a term referring to any strategy, generally in business or politics, which attempts to avoid a negative outcome by increasing the costs of that outcome to those who seek it. ...
After the dot-com bubble burst there was another wave of corporate takovers. 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, chairs, computers and espresso machines. Dot-com (also dotcom or redundantly dot. ...
Venture capital is a general term to describe financing for startup and early stage businesses as well as businesses in turn around situations. ...
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 by 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 lesser 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. Jerry Sargent 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. Michael Kirk Douglas (born September 25, 1944 in New Brunswick, New Jersey, USA) is an American actor and producer. ...
Wall Street has been the name of two movies, one released in 1929 and the other in 1987. ...
Danny DeVito as Louie in Taxi. ...
The Monty Python troupe in 1970. ...
See also: 1982 in film 1983 1984 in film 1980s in film years in film film Events February 11 - The Rolling Stones concert film Lets Spend the Night Together opens in New York Top grossing films North America Star Wars Episode VI: Return of the Jedi Tootsie Trading Places...
The Meaning of Life was a Monty Python comedy film made in 1983. ...
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