Acquiring Control: Understanding Corporate Takeovers Through Stock Ownership

It takes capital to take over a company.

Investors can invest in a company by purchasing either its stock or bonds. Bonds represent a debt owed by the company and must be paid back; stocks represent a unit of ownership. Every time a company issues stock, it is increasing the ownership stake in the company. If an investor wants to take over a company, he can purchase 51 percent of the company's stock. As a result, it takes a great deal of capital to take over most companies.

Step 1

Obtain the company's most recent quarterly balance sheet. The company's ownership structure is outlined in the section of the balance sheet entitled stockholders' equity.

Step 2

Determine the number of shares outstanding. This is a line item in stockholders' equity. It tells you how many units of stocks have been issued. For instance, let's say that company XYZ has 100,000 shares outstanding.

Step 3

Calculate the number of shares you need to purchase in order to take over the company. Multiply the total number of shares outstanding by .51. In this example the answer is .51 multiplied by 100,000, or 51,000.

Step 4

Calculate the amount of capital you need to raise in order to purchase a 51 percent stake in the company. Determine the current price of company stock by contacting your stockbroker, the company's investor relations department or by doing your own research. Let's say the current share price is $10. In this example, the total capital needed in order to purchase a 51 percent stake in the company is 51,000 multiplied by $10, or $510,000.

Step 5

Secure capital. If you don't have the full stake, you can request a bank loan or solicit the help of other investors. As leverage or collateral, look at the current cash position of the company -- the first line item on the balance sheet. This amount can be used to pay off any loans once the company is taken over.

Step 6

Purchase a 51 percent stake in the company. Contact your stockbroker to do this. She will execute the order in waves in order to minimize the increase in stock price as the stock is being purchased.