Question: I heard that one of my stocks has had a toehold purchase. I can't imagine what that means and I can't get in touch with the company.

Tony Bastien

Answer:

Dear Tony,

It's not a phrase one hears very often, so it's not surprising that it is an unfamiliar one.

Below 5%

A toehold purchase takes place when less than 5% of a company's outstanding stock has been purchased by one company or one investor.

It is important to know about a toehold because it may mean that a larger purchase is in the wings. In fact, in the case of a hostile takeover, the acquiring company often begins by making this small, behind-the-scenes toehold purchase -- simply because the purchase does not need to be officially revealed.

The acquiring company is hoping that it can get a "toe" in the door without being noticed.

Above 5%

However, when 5% or more of the company's stock is accumulated by one party, then that party is legally required to notify both the SEC and the company whose shares it is purchasing. The purchaser must also file a 13-d form with the stock exchange where the shares are listed. The information in the 13-d covers the way the shares were acquired, background information about the purchaser and the purchaser's future plans pertaining to the target company.

This filing is designed to protect investors, such as yourself, and to keep them aware of what is taking place.

A toehold action can be positive for shareholders. It often (but not always) indicates that an outside party thinks the shares are worth accumulating - or that the company is worth buying. The toehold acquisition, in fact may drive up the price, although please realize that this is never guaranteed.

I advise you to follow the news about your company on a daily basis.

Good luck!