What is a Targeted Repurchase?

Targeted repurchases are strategies that are sometimes utilized to derail a hostile takeover attempt and retain control of a corporation. The exact method of a targeted repurchase usually involves buying enough of the issued shares to regain controlling interest in the company and thus have enough shareholder votes to prevent the hostile acquisition from taking place. In most cases, the repurchase of outstanding shares is conducted by offering more than the current market price for each share of stock that is repurchased.

A targeted repurchase can involve working around the corporate raider to acquire as many outstanding shares as possible. This usually means offering stockholders more for each share than the raider is willing to offer. With luck, the company can buy up enough shares before the raider has acquired a controlling amount of stock and essentially stop the takeover attempt from proceeding any further.

At this point in the targeted repurchase, the company may approach the corporate raider and make an offer on all shares that the raider has acquired up to this point in time. If the price per share is attractive to the raider, he or she may choose to sell the shares to the issuing corporation and abandon the takeover attempt. When this takes place, the targeted repurchase can be considered a success.

However, if the raider is not happy with the price per share offered by the company, the situation may become a stalemate. When this type of situation occurs, the company may choose to combine the targeted repurchase efforts with another strategy, such as setting up a holding company that receives all acquired shares and begins the process of converting to an employee stock ownership plan. Under these conditions, the raider usually has to accept a fair market value price for the shares under his or her control, or they stand the risk of becoming worthless once the government approves the stock conversion plan.

Hostile takeovers are a fact of life in modern business today. Depending on the position of the company that comes under attack, a targeted repurchase may be a wise move. However, there are incidences where a targeted repurchase attempt may be futile, such as when the corporate raider is determined to acquire the company for dismantling, or when the company lacks the resources to raise enough capital to repurchase the shares.