Dawn Raid

Categories: Trading, Stocks

The Japanese attack on Pearl Harbor was staged at dawn to maximize the element of surprise. In theory, a "Dawn Raid" is one where a takeover target’s stock is accumulated in significant chunks by the potential takeover perpetrator right at the opening bell, prior to making an official announcement. Ostensibly, the thinking behind such a move is to accumulate as much stock as possible at a discount to a tender offer price prior to triggering the 5% SEC filing threshold. At that point, historically, the market will sense a big takeover bid coming and the price of the shares would usually trade up a bunch. The reason we say “in theory” is because things only work in this fashion in movies, like in Wall Street, where Michael Douglas’ Gordon Gekko character buys a controlling interest in an airline company.

In real life, any player looking to acquire sufficient quantities of a publicly trading stock without disturbing the bid/offer must plan to do so in advance and buy through different accounts over a period of weeks in small enough blocs so as not to arouse suspicion, otherwise, there are simply too many other players who will see a noticeable intraday volume uptick to join in the fray to cause the price to escalate quickly. Ironically, the multiple account, slow and steady technique was frequently used by Ivan Boesky, who was the model for the Gordon “I like Dawn Raids” Gekko character.

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