What is ‘Raider’
An individual or organization that tries to take over a company by initiating a hostile takeover bid. Raiders look for companies with undervalued assets and then attempt a hostile takeover by purchasing enough shares to gain a controlling interest. The raider’s objective is usually to generate huge profits in a reasonably short span of time, by breaking up the target company and selling off its assets, rather than attempting to turn its operations around and unlock value over the long haul.
Modern-day raiders prefer to go by the moniker “activist shareholders.”
Explaining ‘Raider’
Raiders need to have deep pockets and plenty of financial support in order to embark upon their raids. They must also have a well-defined exit strategy to realize profits through asset sales.
Companies with substantially undervalued assets on their books and no measures in place to protect against hostile takeovers, are vulnerable to raider attacks.
For example, consider a company with a market value of $100 million, no debt and $25 million in cash, giving it an enterprise value of $75 million. If the market value of the company’s tangible assets is about $200 million, a raider may be tempted to mount a hostile bid in order to capture the huge gains that could be realized by selling its assets.
Further Reading
- Raiders or saviors? The evidence on six controversial investors – www.sciencedirect.com [PDF]
- Corporate raiders and their disciplinary role in the market for corporate control – journals.aom.org [PDF]
- On the economics and politics of corporate finance and corporate control – madoc.bib.uni-mannheim.de [PDF]
- Raider: Responsive architecture for inter-domain economics and routing – ieeexplore.ieee.org [PDF]
- Takeovers and corporate raiders: Empirical evidence from extended event studies – journals.sagepub.com [PDF]
