Corporate Raiding

Some folks spend ten years studying at a university earning an advanced degree in finance and then another ten years groveling as a junior executive to learn the secrets of being a corporate raider. But it’s really very simple and I’ll explain it here.

Step One: find a victim.

Find a company that has corporate governance that is complacent. A great target is a business that has shareholders that are twice removed from actually caring about the company. A great example is a corporation whose majority shareholders are mutual funds. They don’t sit on the boards, they appoint professional board-sitters. All they care about is overall growth in their diversified portfolio. A sinker here and there, they aren’t concerned about. And the true share holders, the original investors in the mutual fund itself, likely have no idea their money has been invested in the company you have targeted as your victim. The owners of the company, twice removed from corporate governance. Perfect…

Step Two: secure financing.

‘Financing’ is not to be confused with ‘Money.’ These are two entirely different things. For this example, I’ll use an investment bank. Secure a Letter of Credit from an investment bank, and the bigger the better. Offer the investment bank a piece of the action and they'll play ball. (I mean, undewrite your business plan.) Think of it as renting their reputation. The reputation of the investment bank is the only thing you’ll need. You’ll not actually borrow any money.

Step Three: seize control.

Go to the disinterested board members that were appointed by the disinterested mutual funds and make them an offer. But be sure to tell them you will deliver payment later, like a year from now. Kind of like, “I’ll gladly pay you Tuesday for a hamburger today.” And offer a ‘consulting fee’ to the board members, you know, for all the time they’ll spend giving you information about the company. That’s fair, right?

The board holds a meeting, papers get passed around and signed, and you become the Chairman, President and Chief Executive of the shell company that just took over your victim company. Shake hands and grin and congratulate everyone and thank them for their time.

Step Four: break up the company.

This step could be called ‘Gutting Out’ or ‘Butchering.’ Basically, take each and every division of the company and make it a separate little business of its own and sell it to competitors, or unstable 3^rd world countries, or oil barons, or the Chinese, whomever. It doesn’t matter, as long as they pay you money.

Step Five: loot!

Now the corporation is a shell company. Grab the cash and get out of town. Don’t worry about paying the debts right away, those are on hold for a year. And that money is owed to mutual funds and the board members to whom you promised ‘Consulting Fees’ to be paid…a year in the future.

Step Six: hide the swag and beg off.

Take the money and put it where it can’t be gotten back. This sounds difficult but isn’t really. It’s a matter of making promises on behalf of the entity that actually raided the company, whilst paying yourself enormous salary and bonus packages. That money is yours personally, while the debts incurred are the debts of the LLC or whatever that actually made the deals. (Well, you did it, but as the representative of that LLC…right?)

So a year passes and the LLC you used as a tool to raid the corporation is broke. Perhaps it can file bankruptcy and pay ten cents on the dollar. But that’s not your problem. You resigned from that company a year ago.

And there you have it, how to be a Corporate Raider. (Or investment banker or whatever. Does it really matter what they call you?)