What is Warehousing?
Warehousing is the process of accumulating shares in a company for the purpose of eventually acquiring the firm.
How Does Warehousing Work?
Let's say the John Doe Hedge Fund is thinking about acquiring a controlling interest in Company XYZ next year. Rather than make a big tender offer for the shares right now, it simply starts buying a few thousand shares here and a few thousand shares there over the next 12 months. In other words, it begins warehousing the shares.
Why Does Warehousing Matter?
Warehousing accomplishes several things. First, it allows a potential acquirer to take advantage of short-term dips in the target's share price (in other words, it buys shares when they're 'on sale'). Second, it avoids having to buy big blocks of shares in one fell swoop, which can make the stock price spike and reveal the company's real intentions. Accordingly, warehousing allows a company to fly 'under the radar' for a time. However, the SEC does require anyone who exceeds a 5% ownership threshold to file a form 13G or 13D, which means the size of the company's position will eventually become public and trackable by others.