A war chest is a pool of liquid assets, often used by companies to prepare for hostile takeovers or by nations to fund military actions. It can also be used to protect against takeovers or as an emergency fund for individuals.
The term “war chest” is used to describe a large pool of assets, especially liquid assets like cash. Since these assets are in liquid form, they are instantly available when needed. War chests often appear in the financial sector, where companies want to ensure they have funds ready in the event of a hostile takeover attempt. A nation can also try to build its war chest to fund military actions and other political maneuvers.
This phrase is a reference to the large chests in which money and goods were transported. Waging war costs a lot of money, and as a result, many nations have historically set aside funds to deal with the eventuality of conflict. It is also not uncommon for a nation to try to find ways to quietly raise money when preparing for conflict. When nations begin accumulating liquid assets, concerned observers may suggest that they are creating a war chest with hostile intent in mind.
In the corporate world, a company preparing to attempt a takeover will build a war chest to make the takeover more attractive to the company it is trying to run. By securing assets ready for acquisition, the company will be able to negotiate a better deal than with stock options and less fluid forms of capital. Acquisitions tend to be very capital-intensive events, as companies need to acquire a majority stake in another company to effectively gain control over them, and this can get quite expensive, especially if the attempted takeover is made public; this can cause a run on a company’s stock.
Some companies also like to keep large war chests to protect themselves from takeover. If a company wants to avoid takeover, it can use war chest funds to buy its own shares, stripping control of a company that might be trying to stealthily buy a majority stake. When companies consider hostile takeovers, they tend to try to get information about available funds for their targets; a large war chest can be seen as a great dismay.
While this term is usually used in reference to large corporations and governments, there is no reason why ordinary citizens should not also have war chests, although the funds included therein may add up to a much smaller total. Reserving liquid assets for emergencies is a prudent financial practice and can ensure that funds are always available, even in the event of a catastrophe.
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