Rump
Rump is the name given to minority group of shareholders who refuse to tender their shares in a corporate action. Rump shareholders can be forced to sell their shares without their consent by the underwriters, through a squeeze-out, depending on the percentage of shares owned by the majority — and as long as it is on the same terms as the offer made to the other shareholders. For example, in the United Kingdom, shareholders owning 90% of the company can consent to squeeze out the other minority shareholders. The rump shareholders are subsequently forced to liquidate their shares at the current fair market value in a squeeze out, also sometimes referred to as a freeze out. Rump shareholders can be forced to sell their shares without their consent, through a squeeze-out.
What is a Rump?
Rump is the name given to minority group of shareholders who refuse to tender their shares in a corporate action. The rump may be attempting to prevent any number of corporate actions, including a rights issue, merger, or acquisition.
How a Rump Works
The rump can stall or halt corporate takeovers if they own enough shares. However, even if they are not in a position to block a merger, their share of the company’s cash flow may be enough to discourage the acquiring company from completing the merger or acquisition in the first place.
Rump shareholders can be forced to sell their shares without their consent by the underwriters, through a squeeze-out, depending on the percentage of shares owned by the majority — and as long as it is on the same terms as the offer made to the other shareholders. For example, in the United Kingdom, shareholders owning 90% of the company can consent to squeeze out the other minority shareholders. In the United States, the percentage of shareholders required to consent to a squeeze out is governed by state law.
Example of a Rump
Assume a UK based corporation, ABC Company, wishes to merge with XYZ Corp. A small portion of XYZ Corp's shareholders, 8%, are adamantly opposed to the merger. Despite their best efforts, the acquisition goes through as planned. The rump shareholders are subsequently forced to liquidate their shares at the current fair market value in a squeeze out, also sometimes referred to as a freeze out.
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
Freeze Out
A freeze out is an action taken by a firm's majority shareholders that pressures minority holders to sell their stakes in the company. read more
Hostile Takeover Bid
A hostile takeover bid is an attempt to buy a controlling stake in a publicly-traded company without the consent of its management. 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
"Just Say No" Defense
A "just say no" defense is a strategy used by boards of directors to discourage hostile takeovers by rejecting the takeover bid outright. read more
Macaroni Defense
The macaroni defense is an anti-takeover measure whereby a company issues a large number of bonds that must be redeemed at a high price if it is acquired. read more
Merger
A merger is an agreement that unites two existing companies into one new company. There are several types of, and reasons for, mergers. 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
Minority Interest
A minority interest is ownership of less than 50% of a subsidiary's equity by an investor or a company other than the parent company. read more