Word: raider
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...typical takeover, a corporate raider might begin by buying a few million shares of a target stock, acquiring them on the open market through a major Wall Street broker. Under SEC rules, however, a raider is obliged to announce his holdings and his intentions once 5% or more of a company's shares are in his grasp. The first result of such an announcement is usually a boost in the stock's price. After the offer is made public, arbitragers, betting that a takeover bid will succeed, jump in and buy as much of the target stock as they...
Meantime, the raider would make plans with an investment banker to raise the cash or credit needed for the takeover, often by launching a junk-bond issue. With such financial backing lined up, the raider could then announce a bid for the controlling interest in the target company's stock. By then, the necessary holdings might be in the hands of arbitragers, who would be waiting to sell at a still higher price than their own efforts had created...
...intended takeover victim fights back, outside brokers who are unregistered with the major stock exchanges might enter the game, usually as stalking horses for the raider. The job of the so-called third-market brokers is to "sweep the Street" quickly and quietly for any available blocks of stock in the target company, usually after regular market hours or when normal trading in a stock has been suspended under exchange rules. Then they turn the shares over to the raider...
...those operations are completely legal. But the close proximity of a small core of professional takeover specialists, and their towering importance in the market of the '80s, makes the prospects for collusion virtually endless. Since brokers and junk-bond dealers often know about a raider's plans well in advance of the general public, those professionals have the opportunity to tip off other investors or to make their own profits by trading in the target stock...
Lawyer Daniel Bergstein, a senior partner in the New York firm of Finley Kumble Wagner, which has many Wall Street clients, notes that raiders and arbitragers can form what he calls an "unholy alliance." In a typical maneuver, they might have a mutual commitment to buy up stock in a company, limiting their blocks to less than 5% to avoid the SEC's required disclosure rule. Then one member of the ring can leak the rumor of an impending takeover. When legitimate arbitragers leap into the fray, the group can unload at an inflated stock price and make off with...