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Warehousing is a technique that a business can use to take over another business. Shares of the target company are bought by a representative of the acquiring company, a few at a time, and stored away, or warehoused, until the acquiring company owns a substantial portion of the target company. This type of takeover is often used when the acquiring business does not have the resources to buy the target business all at once. It can be used in conjunction with the dawn raid technique, which many countries now have laws to protect against.
By warehousing shares from a target company, an acquiring company can gain a controlling interest, making it possible for an acquiring company to make fundamental differences in the way that company is run. In publicly owned companies, important decisions are made when the shareholders vote. If a company owns a controlling interest in another company, it owns more than 50% of the votes and can initiate changes even if the rest of the shareholders disagree. These changes can involve the sale of the target company to the acquiring company or the replacement of management with employees from the acquiring company.
Companies have ways to prevent takeovers, and warehousing is one way that an acquiring company can avoid these protections. Often, the acquiring company will select one or more representatives to purchase shares in the target company. This keeps the target company from realizing that there is a takeover underway until it is too late.
Warehousing is often done a little bit at a time. The acquiring company may buy only a few shares at a time so that the purchases do not affect the price of the shares or so that it can spread out the cost of acquiring the target company. Warehousing is often used by companies that cannot afford to make an outright offer on the target company.
The dawn raid technique can be used in conjunction with warehousing. An acquiring company instructs its brokers to purchase a controlling interest of shares of the target company as soon as the market opens. An acquiring company may pool the shares obtained during a dawn raid with those they have been warehousing or may make an offer to buy out the rest of the company after purchasing many of the shares.
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