Investors typically use stock apps to make a profit and diversify their portfolios. But did you know that it's possible to buy enough shares to take over a company? With this approach, you would become a majority shareholder and have direct control over the company's operations. However, most businesses don't put all of their stock on the market, so you might need to use a different strategy to acquire ownership rights.
Investors can take over a company by purchasing at least 51 percent of its voting stock. Sometimes, the only option is to make a tender offer, which could result in a hostile takeover.
Understand Your Options
First things first, make sure you understand your options when it comes to buying stock. Companies issue stock to raise capital, points out the U.S. Securities and Exchange Commission (SEC). They may use the money to develop new products, build new facilities or expand their operations. Investors, on the other hand, buy stock in order to earn dividends and make a profit when stock prices go up. Depending on the type of stock, they may also have voting rights in the company.
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Common stock gives investors the right to vote, earn dividends and participate in decision-making. Preferred stock doesn't carry voting rights, but it has other perks. For example, you will have priority over common shareholders if the company goes bankrupt. Both types of stock can be further divided into several categories, such as growth shares, income shares, value shares and so on.
As mentioned earlier, most businesses only sell a limited number of shares so they can prevent hostile takeovers. Otherwise, any investor with enough money could buy the majority of shares and take control of the company. But there are instances where buyers may offer to purchase shares from stockholders at above market value to acquire a majority stake. This strategy is known as a tender offer, explains Northeastern University.
If you want to have a controlling equity interest, you must purchase at least 51 percent of the company's voting shares. A hostile takeover would allow you to do that, but it can also affect stock prices, employee morale and retention rate. Moreover, it can hurt the company's reputation and lead to revenue loss. Sometimes, hostile takeovers may cause an increase in stock prices while improving work performance, efficiency and other success metrics, but it's hard to predict the outcome.
Check the Company's Financials
Once you have decided to take this step, check the company's most recent quarterly report. These documents can offer valuable insights into its financial performance, inventories, ownership structure, marketable securities, liabilities and more. Any organization that issues stock must file its reports with the SEC. All fillings are listed in the Electronic Data Gathering, Analysis and Retrieval (EDGAR) database.
Head over to EDGAR and type the company's name, ticker symbol or Central Index Key (CIK) into the search bar to get the information you need. On the quarterly report, check out the section called stockholders' equity to determine the number and types of shares that can be purchased. As discussed above, you must own at least 51 percent of the company's voting stock to take over the organization. Study the report and then decide on the next steps. Figure out the amount of capital you need, assess your financing options and reach out to a broker.
If you decide to make a tender offer, be sure to comply with the SEC's requirements. Also, note that any organization or individual seeking to acquire more than 5 percent of a company's stock must report this information to the SEC. There are strict rules on how long a tender offer can remain open and how to extend it, among other aspects. Discuss your options with a commercial lawyer to determine the best course of action.
- U.S. Securities and Exchange Commission: Stocks
- Northeastern University: Offensive and Defensive Strategies for Hostile Takeovers
- U.S. Securities and Exchange Commission: Exchange Act Reporting and Registration
- U.S. Securities and Exchange Commission: EDGAR — Search and Access
- U.S. Securities and Exchange Commission: The Laws That Govern the Securities Industry