Toehold Purchase

Posted in Finance, Accounting and Economics Terms, Total Reads: 426
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Definition: Toehold Purchase

Toehold purchase is the concept of acquisition of only a 5% or lesser stake in a company by buying stocks. It is a very small percentage of stake in the company but it still gives the shareholder an option of being a decision maker in the acquired company. Since it is a very limited and small share, it appears like having a 'hold of the toe' in the acquired company and hence the term.


Explanation:

The companies are absolutely free for purchasing up to lower than 5% of any incorporation. But once an incorporation purchases 5% or greater of target company, the acquirer should file a 13D form with the SEC and provide explanation to the target firm in writing, the reasons for purchasing 5% or more of the stock. By filing a 13D form, moreover notifies to the public, what the companies’ intentions are to do with its toehold purchase, and might be a precursor to a takeover.


By filing a 13D form, moreover notifies to the public, what the companies’ intentions are to do with its toehold purchase, and might be a precursor to a takeover.


In the case of a decision making among the shareholders, the perspective of a toehold shareholders is also considered, thus making them important to the acquired company.


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