A radar alert is a practice among managers of a corporation to identify unusual patterns in stock trading with the hopes of spotting the warning signs of a takeover attempt. The term references the idea of using radar to spot oncoming storms and other navigational hazards where concentrated activity shows up as a hot spot on the radar, so people know to avoid it. Some companies may contract this practice out to a firm specializing in monitoring of market activity.
One method for a takeover attempt can involve quietly accumulating stock in a company with the goal of obtaining a majority share. The majority shareholder can determine the outcome of elections and has the ability to vote board members on or off in addition to making decisions when the management puts them to a vote. Managers use a radar alert to detect signs that someone is trying to buy up a majority share of a company's stock.
Takeover attempts of this nature rarely involve a single person buying up shares openly. Instead, people may use proxies and other means to obtain a controlling share without being obvious about it. The radar alert system allows managers to identify unusual activity, including trades that stand out because of timing or volume of shares. Managers may also keep tabs on the people most likely to try a takeover attempt.
When the radar alert reveals a potential takeover attempt, managers can meet to decide how to deal with it. There are a variety of techniques they can use to try and prevent a loss of control over the company. Their goal is to protect the interests of shareholders and the company, and if they feel a takeover attempt would be harmful, they can take action to address it before it happens. This may not always be successful, depending on market conditions and how quickly they respond to the attempted takeover bid.
Firms that offer radar alert services are known as shark watchers. They use research teams and a variety of methods to watch the markets, looking for abnormal trading activity, unusual interest in a company's shares, or other warning signs. Sometimes large sales of stock by investors and companies can signal a need to raise capital for a takeover attempt, for example. The shark watcher will keep track of any and all potentially suspicious activity and issue reports to alert managers to any potential situations on the horizon.
