Corporate raider refers to the practice of obtaining a controlling share of a corporation, then proceeding to sell off that company’s assets or force a merger with another company. The proceeds of any sold assets are subsequently divided among the shareholders. A corporate raider occurs when a party believes a company’s parts are worth more than the sum of its whole.
At its peak in the 1980’s, corporations had few means to prevent a corporate raider. This lack of preventative tools lead to the widespread practice of greenmail. In greenmail, corporate raiders would purchase a controlling share in the corporation and subsequently sell those shares back to the corporation for an inflated price. These corporations have no choice but to pay the inflated prices if they don’t want their company dissolved.
In recent years the prevalence of corporate raiders has decreased due to the adoption of poison pill clauses and regulatory taxes designed to reduce the profitability of corporate raiding as a strategy.
[Last updated in July of 2022 by the Wex Definitions Team]