Dawn Raid

What is Dawn Raid ?

Dawn Raid is when an investor or a firm purchases a large number of shares in a company first thing in the morning when the stock markets starts operating. Considering the fact that the bidding party builds a substantial stake in its target at the prevailing stock price, the cost associated with the takeover is likely to be much lower than it would probably be if the acquiring party had first offered a formal takeover bid.

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The concept behind Dawn raid is much akin to dawn raids in battles. The corporate dawn raids are usually done pretty early in the morning, thus allowing litting time to the target to realize that it’s under attack. By the time the target spots the attack, it’s already too late – the investor has probably already scooped up a certain level of controlling interest.

However, the existing rules ensure that only a minority interest in a firm’s shares can be purchased using this method. Therefore, following a successful dawn raid, the raiding or attacking firm is likely to make a formal takeover bid to lay their hands over the rest of the target company.

Edited and Updated 2nd January 2014

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