Investment Banking Tutorials
- Mergers and Acquisitions
- What is Mergers and Acquisitions?
- Mergers vs Acquisitions
- Acquisitions Examples
- Horizontal Merger
- Vertical Merger
- Synergy in M&A
- Successful Mergers and Acquisitions
- Financing Acquisitions
- Acquisition Premium (Takeover)
- Statutory Merger
- Joint Venture
- Advantages of Joint Venture
- Types of Joint Venture
- White Knight
- Hostile Takeover
- Golden Parachute
- Poison Pills
- Killer Bees Defense Strategy
- Show Stopper in M&A
- What is Amalgamation?
- Spin off vs Split Off
- Forward Integration
- Backward Integration
- Horizontal vs Vertical Integration
- What is Divesting / Divestiture?
- Bootstrap Effect
- PAC MAN Defense
- Flip-In Poison Pill
- Flip-Over Poison Pill
- Scorched Earth Defense Policy
- Tender Offer
- Friendly Takeover
- Amalgamation vs Merger
- Lobster Trap Defense
- Asset Purchase vs Stock Purchase
- Joint Venture vs Strategic Alliance
- Greenshoe Option
- Dawn Raid Takeovers
- Crown Jewels Defense
- Best Mergers and Acquisitions Books
- What is Asset Restructuring?
- Investment Banking Basics (44+)
- Investment Banking Careers (24+)
- Investment Banking Firms (27+)
- Top Banks (42+)
- Cryptocurrency Basics (10+)
Dawn Raid Takeover is defined as the sudden buying of the substantial number of the shares of the target company by the potential acquirer as soon as the market opens at “dawn” and this takeover is initiated by the acquirer company’s shareholders taking over the target company
Dawn Raid Meaning
Dawn Raid is a term of British origin and is popularly used in the context of UK takeovers. It involves the purchase of a large shareholding in a target company in a short span of time before any formal announcement of a hostile takeover is made public. The word Dawn Raid is used to describe the attempt made by the potential bidder to acquire a significant stake often at the opening of trade in order to position the investor for a potential takeover bid.
As we note from the above Dawn Raid example wherein Chinalco and Alcoa jointly bought 12% stake in Rio Tinto’s London based shares.
- Under this, the investor or acquirer company instructs its broker to buy as big a stake as possible by acquiring the shares available in the company as soon as the stock market opens and trading begins without the market or the management of the target noticing.
- By acquiring such large stakes the investor or acquirer company is able to reduce its takeover cost as it might have already acquired a large number of shares before the formal announcement of takeover and will have to acquire less number of shares after the announcement to gain significant stake for attaining majority control on the target company.
- It is important to note here that Dawn Raid help investor or Acquirer Company to reduce its takeover cost substantially as acquiring shares before making a formal announcement for takeover is comparatively more cost effective than the cost to be incurred after a formal announcement of takeover is made as such information will result in advancing up the prices of the shares of target company which will result in more cash outflow for acquirer company.
- This is a stock market operation in which a large proportion of a company’s shares are suddenly bought, often in anticipation of a takeover bid. With a successful Dawn Raid, the raiding firm makes a takeover bid to acquire the rest of the company.
Dawn Raid Examples
Let’s understand how a Dawn Raid strategy actually operates with the help of an example:
Heal International Limited is a leading manufacturer of generic medicines based out of London and intends to acquire Faze International Limited which is also in the same line of business of formulation and generic medicine with a large market share in areas which are not covered by Heal International Limited. Heal International intends to takeover Faze International Limited using a Dawn Raid takeover strategy. The shares of Faze International are currently listed on the London Stock Exchange (LSE) and trades at $40 per share.
Heal International using this strategy succeeded in acquiring up to 30 percent stake by acquiring shares of Faze International from the open market and thereafter made an open offer for acquisition of controlling stake (51 percent). If Heal International would have made a formal offer to buy 51 percent in Faze International it would have to offer a premium to the existing price ( $40 in this case) and would have resulted in millions of dollars more. Thus using Dawn Raid Heal International succeeded in acquiring a significant stake and saving million dollars in the acquisition.
History and Purpose of Dawn Raid
- The Takeover Panel through its Substantial Acquisition Rules popularly known as SARs earlier used to provide a delaying mechanism for the way in which acquirer companies or investor can acquire up to 29.9 percent stake in a company through Dawn Raid Strategy and were originally designed to prevent such hostile takeover and allow management to advise their shareholders before it was too late to influence the course of events.
- Under the said rules a bidder could buy only 14.9 percent stake at one time, wait a week before buying a further 9.9 percent and wait another week before acquiring another 4.9 percent. These rules were basically framed with the intention to allow the target company to react to the bid and advise their shareholders.
- However, with the dropping of the formerly imposed rules discussed above, a bidder (which can be an acquired company or an investor) can purchase shares up to 30 percent of the shares in the target company as fast as it can through a Dawn Raid. However, once the bidder has acquired a 30 percent stake they must formally announce the bid.
- These save a lot of money for the raiders or acquirer and is a good alternative to making a formal offer as that would involve paying a premium to shareholders from the traded price of the share of Target Company. These are also beneficial to the shareholder of the Target Company as post-Dawn Raid also the acquirer has to compulsorily make a formal takeover bid which is usually a premium to the existing price.
Mergers, Acquisitions, and Takeovers are part of the business world and companies keep pursuing them to increase shareholder value. This is a corporate action most popular in the UK where a company tries to acquire control through a hostile bid aiming at acquiring as many shares as possible of the target company early in the morning before the target firm becomes aware of the acquirer true identity and intent.
- This is a very offensive tactic and due to its inherent technique of acquiring a large number of shares in the morning as the capital market opens it results in an increase in the demand of shares which soar up the stock prices further and this result in stock prices quoting higher which lead to increase in cost of acquisition. Furthermore, the strategy is not fit for all countries as some countries regulation requires that Dawn Raid can’t be more than 15 percent (Indian context) and beyond that, an open offer is compulsory to be made.
- Secondly acquiring such a large number of shares from the open market requires adequate liquidity which is also situational and may not be available all times thereby impacting the prices of the shares.
- Thus we can say that Dawn Raid as a takeover strategy has its own merits and demerits and the acquiring company can opt for the same based on its current state of affairs and the target company which it intends to acquire.
Dawn Raid Takeovers Video
This has been a guide to what is Dawn Raid? Here we discuss the meaning of Dawn Raid takeover, its history, and purpose. Along with this, we take practical examples to explain the concept of Dawn Raid. You may learn more about M&A from the following articles –