Corporate Raider

A corporate raider is more or less Gordon Gekko in the movie Wall Street. And other than the insider information he gleaned courtesy of Denise Richards’ ex, corporate raiding is actually...legal.

So what happens in a corporate raid? Well, the raider becomes a dissident shareholder, buying enough of a stake in the company to vote herself or her representatives seats on the board of directors.

Remember: common shareholders elect the board. The board hires the CEO…and fires the CEO. And helps to set a lot of policy.

So what’s raiding? Well, a company might have a fully funded pension fund, and has kept responsible financials...which now the company will be basically punished for. That pension can serve as collateral for the company to borrow against to. To, uh...do stuff with. Like buy back its own stock. Or buy a competitor. Or pay a big fat dividend, whether it really needs to or not. In this case, the company is raiding their pension fund.

Raiding can also mean that the new board...either with the regretful help of the old CEO or the help of a newly recruited CEO…sells off parts of itself.

Many conglomerates have dozens of divisions, each of which do business with one another over time. But, at any given moment in time, one division might be in favor, and it would sell for a high multiple at auction among competitors. So maybe the raider puts that division on eBay and gets the cash for it.

There are usually many things that companies can do in the vein of short-term greed to goose their stock price…only to find that, at the next business cycle, they are woefully unprepared. The problem? Well, by the time that next cycle comes around and the tide goes out, the raider pirates are usually long gone, having bought their stock, watched it rise to where they sold, and left the board, the company, the raiding…never to be heard from again. As the company slowly drowns in its now raided/weakened condition.