How Do Corporate Raiders Make Money?

How Do Corporate Raiders Make Money?

1 Answer

  1. As we know that a corporate raider is an investor who buys a large interest in a corporation whose assets have been judged to be undervalued with the goal to affect profitable change in the company’s share price. Let’s work through an example of how do they do it. So, firstly an investor uses a stock screener and identifies a company whose market value is trading significantly below its book value. Then in determining the rationale for the low market value of the company, the investor finds that its historical profitability ratios are comparable to competitors, but that the company’s management demonstrates a poor track record in sourcing deals to grow the business. As such, the investor acquires a majority interest in the company by purchasing shares on the open market. At the company’s annual general meeting, the investor votes out the current management team and reconstitutes the management team with seasoned veterans. On this news, the company’s share price skyrockets and that is how he mints money.

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