What is a Raider?
In the finance world, raider is short for corporate raider, which is a person or entity that purchases a company for the sole purpose of selling off its assets.
How Does a Raider Work?
Raiders are attracted to companies whose assets have book values that are higher than their capitalizations. For example, let's say Company XYZ is a shoe company that owns several factories on pieces of real estate, has several patents in shoe technology, and owns a variety of other assets, all worth about $250 million today. However, Company XYZ's "New Feet" line has been a bust and the is only worth $1 a share, making the company worth, say, $100 million today. Accordingly, a raider might see that he or she can purchase the company for $100 million and the the assets up for a cool $150,000,000 profit.
Why Does a Raider Matter?
One of the most famous raider stories involves the $25 billion takeover of RJR Nabisco by private firm Kohlberg Kravis Roberts in 1989. The deal was so famous (and so brazen) that it was immortalized by the book and movie Barbarians at the Gate. In those days, many companies used leveraged buyouts to purchase undervalued companies (that is, they would borrow all or most of the purchase price) only to turn around and sell off the assets.
Carl Icahn was a corporate "raider" in the 1980s and made millions buying and selling companies. Later, he became more known as an activist shareholder -- a person who buys a substantial portion of a company'sand then pressures management to take actions that are sometimes uncomfortable but ultimately in the best interest of the shareholders.
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