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What Is a Shark Watcher?
A shark watcher is a professional or firm that specializes in the early detection of hostile takeovers. Shark watchers are hired by firms that are concerned about the possibility of being targeted by larger corporations. They monitor aspects of a firm’s trading activity on the market that could indicate a possible takeover, such as who is accumulating shares and the number of shares acquired.
Key Takeaways
- A shark watcher specializes in the early detection of hostile takeovers.
- Shark watchers are hired by firms that are concerned about being targeted by larger corporations via hostile takeovers.
- Shark watchers monitor aspects of a firm’s trading activity on the market, such as who is accumulating shares and the number of shares acquired.
- Shark watchers alert companies and their management teams of any unusual activity they may detect while monitoring market activity.
- Companies under threat may use any number of strategies to dissuade the potential acquirer from going through with its hostile takeover plan.
How Shark Watchers Work
Large corporations often look at smaller companies and startups as easy takeover targets. The target firm may have a product or service worth acquiring, offer a way to break into a new market, or be a competitor that is stealing market share.
When a company doesn’t want to be taken over, the potential acquirer may decide to pursue a hostile takeover. This generally involves building an influential stake in the target, stirring unrest among company shareholders, potentially raising support to oust members of the board that oppose doing a deal, and basically doing whatever it takes to get the takeover approved.
Companies may have experienced problems with their share prices as a result of issues with management, finances, or business. Potential targets have to be vigilant to prevent themselves from being taken over. One way to do so is by hiring what the financial industry calls a shark watcher. The term is analogous to a large shark swimming around a body of water in search of smaller fish to swallow up.
A shark watcher is a professional or company that monitors trading patterns in their client’s stock and attempts to determine who is accumulating shares. That’s because companies often initiate hostile takeover attempts by acquiring stock so that they can control a significant part of voting rights or a majority of voting rights. The shark watcher’s primary business is usually the solicitation of proxies for client corporations.
A shark watcher can also be hired by a third party who is interested in possible risk arbitrage opportunities that may arise as a result of an attempted takeover.
Hostile Takeover Defense Strategies
Shark watchers are key players in mergers and acquisitions (M&A). But rather than facilitate them, shark watchers help prevent them from occurring, especially when the target company has no desire to be taken over.
So what happens when companies think they are targets? These businesses have a few options available to them when they believe another company may wish to take them over. There are a number of lines of defense that a target can use to dissuade hostile parties who may show an interest in the potential target firm. They range from poison pills to golden handshakes.
The poison pill defense, for example, aims to dilute the shark’s ownership of the target, whereas the golden handshake involves arranging large severance packages for a company’s key personnel. Defenses commonly involve making the cost of a takeover far too high or making the target company worse off from either a financial or strategic standpoint. The goal is to lead the so-called shark to believe that acquiring it becomes a less attractive business move.
Example of a Shark Watcher
Here’s a hypothetical example to show how shark watchers work. Let’s say Sesame Brokerage is a publicly traded company that has a lot of valuable assets. The company’s stock price has recently been depressed due to macro trends sweeping the industry. The company’s management, shareholders, and board of directors are all concerned about being a takeover target.
Sesame Brokerage hires Bert and Ernie’s Shark Watchers Inc. to monitor the trading activity of Sesame Brokerage’s shares on the open market. The firm will track companies that acquire shares of Sesame Brokerage and alert Sesame’s management team to any possible takeover threats.
At this point, Sesame Brokerage could be made aware by its shark watcher that Monster ABC has been buying up significant amounts of its shares, possibly seeking to acquire a majority holding. Monster ABC is known for acquiring depressed companies. Sesame Brokerage can then prepare itself to fight off the takeover by implementing a variety of defenses before the acquisition is attempted.
What Does Shark Mean in Investment?
When somebody is called a shark, it generally means they are seeking to take advantage of others in some way. Sharks are generally considered to be powerful animals that dominate the sea and eat what gets in their way. Alongside whales, they sit at the top of the ocean’s food chain.
What Is a Hositle Takeover?
A hostile takeover is a takeover attempt that is considered hostile. It basically means a company trying to acquire another one against its wishes and bullying its way to power.
What Is a White Knight strategy?
A white knight is a hostile takeover defense strategy that involves a target seeking out a friendlier company to take it over as an alternative to the unfriendly bidder. The white knight, for instance, may be willing to keep the existing staff and cause less upheaval.
The Bottom Line
Being taken over isn’t a desirable outcome for everyone. Some companies don’t want this to happen and worry that a bigger fish could aggressively pounce with an offer that shareholders like and gobble it up. That fear has created a market for shark watchers. These firms help companies to spot if a predator is lurking. They keep tabs on who is buying notable stakes, etc., and alert their clients about any suspicious movement so that they can find an adequate defense before it’s potentially too late.