What is a Concert Party?

A concert party is a group of speculators who work together to buy a lot of common stock in a company without attracting much attention. They do this because they want to take over the company. Sometimes this is legal, and sometimes it is not.

Legal Concert Parties

When a concert party wants to take over a company legally, they quietly buy up a lot of the company’s stock before making a public takeover offer. This helps them get control of more shares at a lower price.

Here’s how it works:

• The speculators in the concert party slowly accumulate shares over time
• They are careful not to buy too much at once, which could drive the price up
• Once they have a big stake, they announce a takeover offer to buy the rest of the shares
• Since they already own a lot of stock, the takeover is more likely to succeed

This sneaky strategy is allowed as long as the concert party follows all the rules about disclosing their stock purchases. But it can still catch the company by surprise.

Illegal Concert Parties

Some concert parties break the law when they buy up a company’s stock in secret. The law says you have to report it when you get more than a certain percentage of a company’s shares.

Illegal concert parties might:

• Use fake names and accounts to hide how much stock they really own
• Spread their shares out between a bunch of different speculators so no one hits the reporting limit
• Lie about their plans, saying they are passive investors with no aim to take control

If they get caught, illegal concert parties face big fines and even jail time. But some still try it, hoping to make a lot of money from a takeover.

How Concert Parties Affect Companies

When a concert party is buying up stock, the company usually doesn’t realize what’s happening at first. The speculators do everything they can to avoid raising suspicion.

The Surprise Takeover Offer

Often, the first sign of trouble is when the concert party suddenly announces a takeover offer for the rest of the company’s shares. This can throw the company into chaos as they scramble to respond.

The company might:

• Try to find a “white knight” – a friendly investor to buy shares and help fight off the takeover
• Adopt a “poison pill” – a plan to make the company less attractive, like giving other shareholders the right to buy stock at a discount
• Sue the concert party, claiming they broke disclosure rules
• Negotiate with the concert party, maybe agreeing to add some of them to the board if they back down

No matter what, a surprise takeover offer from a concert party is a huge distraction for company leaders. Instead of focusing on running the business, they get caught up in an expensive, stressful battle for control.

Bad for Business?

Concert parties argue that they make companies more efficient by shaking up bad management. But their critics say concert parties are just looking for a quick buck at the expense of the company’s future.

The uncertainty around a takeover bid can hurt a company by:

• Making customers and suppliers nervous about doing business with them
• Scaring away top talent who don’t want to deal with the drama
• Forcing the company to take on debt or sell assets to fight the takeover
• Distracting leadership from long-term strategy and planning

Even if the company stays independent, fending off a concert party can leave it weaker. And if the takeover succeeds, the concert party might just sell off pieces of the business for profit without making real improvements.