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What is a War Chest?

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  • Written By: Mary McMahon
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 September 2016
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The term “war chest” is used to describe a large reserve of assets, especially liquid assets like cash. Because these assets are in liquid form, they are instantly available when needed. War chests most commonly appear in the financial sector, where corporations want to ensure that they have ready funds in the event of an attempt at a hostile takeover. A nation may also try to build up its war chest to fund military actions and other political maneuvers.

This phrase is a reference to the large chests in which money and goods were once transported. Waging a war costs a great deal of money, and as a result many nations historically set aside funds to handle the eventuality of conflict. It is also not uncommon for a nation to try and find ways to quietly raise money when it prepares for a conflict. When nations start to build up liquid assets, concerned observers might suggest that they are creating a war chest with a hostile intent in mind.

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In the corporate world, a company preparing to attempt a takeover will assemble a war chest to make the takeover more appealing to the company it is trying to commandeer. By ensuring ready cash assets for takeover, the company may be able to negotiate a better deal than it can with stock options and less fluid forms of capital. Takeovers tend to be very capital-intense events, as companies must acquire a majority holding of stock in another company to effectively gain control of it, and this can get quite costly, especially if the attempted takeover is made public; this can cause a rush on a company's stocks.

Some companies also like to maintain large war chests to protect themselves from takeover. If a company wants to avoid takeover, it can use the war chest funds to purchase its own stock, wresting control away from a company which might be trying to stealthily buy up a majority share. When companies consider hostile takeovers, they tend to try and get information about the funds available to their targets; a big war chest might be viewed as a major discouragement.

While this term is generally used in reference to major corporations and governments, there's no reason ordinary citizens should not have war chests too, although the funds enclosed therein may come to a much smaller total. Setting liquid assets aside for emergencies is prudent financial practice, and it can ensure that funds are always available, even in the event of a catastrophe.

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