Predator

Predator

Table of Contents What Is a Predator? Even though it may signal the end of the smaller, weaker business, a merger or acquisition leads to the expansion of the predator company. Another way prey can protect itself from a predator is to use the poison pill strategy by making its stock less attractive to the company that wants to acquire it. The prey may also ward off takeovers through a golden parachute, or by offering big benefits like stock options or severance pay to top executives in the event it does get acquired by another company. The prey loses its autonomy when bought by the predator, but this may be a better alternative than what the prey was perhaps otherwise facing, namely, extinction.

A predator is a solvent, financially strong company that seeks out a weaker company to acquire or to merge with.

What Is a Predator?

In business, a predator is a slang term for a financially strong company that "gobbles up" another company via a merger or acquisition.

The company that does the acquiring in this case — i.e., the predator — will often engage in a hostile takeover bid and/or bear substantial risks associated with the acquisition of the smaller and weaker company (the "prey").

A predator is a solvent, financially strong company that seeks out a weaker company to acquire or to merge with.
The weaker company in the equation is seen as the prey, with the business world applying the language of evolution in the real world to that of corporate takeovers.
While the word predator seems to suggest a hostile takeover, the deals are often negotiated between the two companies.
The predator company in the pairing is taking on financial risk by buying the weaker company, but the tradeoff is the capacity for expansion and greater market share.
The prey loses its autonomy when bought by the predator, but this may be a better alternative than what the prey was perhaps otherwise facing, namely, extinction.

How Predators Work

Predators are said to be very powerful firms that are financially strong. They are typically the ones who initiate any merger or acquisition activity. By contrast, those on the other end of the spectrum — or the ones who are the weaker targets of the predators — are called the prey. That's because they can be easily snatched up by corporations that are more powerful.

The term predator can have a negative connotation, especially in the case of hostile takeovers. But in some instances, a predator can also be the saving grace for a smaller company that is struggling and may not have any other option but to merge or be acquired.

Predators Are Just Part of the Business Landscape

Just like in the real world, big business is evolutionary. So it makes sense that the concept of predators and prey would exist in the corporate world. Every business goes through some sort of evolutionary phase — whether that's to grow and strengthen to become a predator, or to become the prey and get eaten up by the competition. Even though it may signal the end of the smaller, weaker business, a merger or acquisition leads to the expansion of the predator company. 

Identifying the Predator's Steps

Finally, it may take considerable financial capital to restructure and consolidate the two companies into one cohesive unit once the acquisition is complete.

Keeping Predators at Bay

Just because a company may be an attractive target for a predator, that does not mean it will always get swallowed up. In fact, there are ways in which the prey can keep predator companies away. For instance, the management team for the prey can all threaten to drop a so-called people pill or promise to resign en-masse if the company is taken over.

Another way prey can protect itself from a predator is to use the poison pill strategy by making its stock less attractive to the company that wants to acquire it. The prey may also ward off takeovers through a golden parachute, or by offering big benefits like stock options or severance pay to top executives in the event it does get acquired by another company. By making these offers, the acquiring company would have to then take a financial hit by paying them out. 

Example of a Predator

As a historical example, in June 2018, AT&T won court approval to take over Time Warner for $85.4 billion. Talks between the two companies began in 2016. By acquiring Time Warner, AT&T would be able to boost its own cable, wireless, and phone services by bundling them with television content from Time Warner. But the deal was blocked by the U.S. Justice Department, which sued over antitrust issues.

The department, along with antitrust experts, called for the companies to sell off some of the major parts of their businesses before merging. This was out of fear that a merger like this would lead to more industry consolidation and end up hurting consumers. But executives from the two companies refused, which led to a trial in court. The presiding judge decided to allow the merger to go forward.

Related terms:

Accounting

Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business to oversight agencies, regulators, and the IRS. read more

Acquisition

An acquisition is a corporate action in which one company purchases most or all of another company's shares to gain control of that company. read more

Antitrust

Antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. read more

Capital : How It's Used & Main Types

Capital is a financial asset that usually comes with a cost. Here we discuss the four main types of capital: debt, equity, working, and trading. read more

Consolidation

Consolidation is a technical analysis term referring to security prices oscillating within a corridor and is generally interpreted as market indecisiveness. read more

Corporation

A corporation is a legal entity that is separate and distinct from its owners and has many of the same rights and responsibilities as individuals. read more

Golden Parachute

Golden parachutes have their proponents and detractors, and both sides present arguments. They are part of the "poison pill" countermeasures. read more

Hostile Takeover

A hostile takeover is the acquisition of one company by another without approval from the target company's management. read more

Merger of Equals

A merger of equals is when two firms of a similar size merge to form a single, larger company. read more

Mergers and Acquisitions (M&A)

Mergers and acquisitions (M&A) refers to the consolidation of companies or assets through various types of financial transactions. read more