What is a Toehold Purchase?
Toehold purchases are usually defined as acquisitions of less than five percent of the outstanding stock of a given company. The toehold purchase serves to establish the acquiring company’s interest in the corporation. It is not uncommon for companies to acquire a toehold purchase in other corporations as a means of generating a steady flow of revenue in the form of investment income or dividends. However, the toehold purchase may not be simply a means of diversifying investments and creating steady revenue streams. Corporate raiders often will make use of a series of toehold purchases to quickly acquire a sizable amount of controlling interest in a given company. In decades past, a series of low profile toehold purchase transactions would allow a raider to gain control of a company before any notice was taken. Fortunately, that is no longer the case. Today, many countries have established regulations that require investors to file documents with a government agency when a cumulative p
