Special situation

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Special situation in finance is an event turning business to go not as usual and materially impacting a company's value. The notion covers restructuring of a company and corporate transactions such as spin-offs, share repurchases, security issuance/repurchase, asset sales, or other catalyst-oriented situations. A conflict of shareholders is also considered a special situation.

Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs. Other reasons for restructuring include a change of ownership or ownership structure, demerger, or a response to a crisis or major change in the business such as bankruptcy, repositioning, or buyout. Restructuring may also be described as corporate restructuring, debt restructuring and financial restructuring.

A corporate spin-off, also known as a spin-out, or starburst, is a type of corporate action where a company "splits off" a section as a separate business.

Share repurchase is the re-acquisition by a company of its own stock. It represents a more flexible way of returning money to shareholders.


To take advantage of special situations, a hedge fund manager must identify an upcoming event that will increase or decrease the value of the company's equity and equity-related instruments. [1]


Generally, the special situations investing is considered to be a subclass of alternative investments. Special situations are very risky and challenging as businesses go not as usual. They require specialized expertise; determining the best price can be difficult. In addition, profits are far from assured, because prices might increase as more money chases deals. [2] Therefore, such situations are monitored and sought after by hedge funds, for they provide interesting investments opportunities. Private equity funds and other institutional investors also do special situation investments as part of their strategies.


There is also a definition of special situation by Benjamin Graham:

Benjamin Graham American investor

Benjamin Graham was a British-born American investor, economist, and professor. He is widely known as the "father of value investing," and wrote two of the founding texts in neoclassical investing: Security Analysis (1934) with David Dodd, and The Intelligent Investor (1949). His investment philosophy stressed investor psychology, minimal debt, buy-and-hold investing, fundamental analysis, concentrated diversification, buying within the margin of safety, activist investing, and contrarian mindsets.

First, just what is meant by a "special situation"? Convention has not jelled sufficiently to permit a clear-cut and final definition. In the broader sense, a special situation is one in which a particular development is counted upon to yield a satisfactory profit in the security even though the general market does not advance. In the narrow sense, you do not have a real “special situation” unless the particular development is already under way. [3]

Classes of special situations

In his well-known book Security Analysis , Benjamin Graham divides special situations into six classes: [4]

<i>Security Analysis</i> (book) book by Benjamin Graham

Security Analysis is a book written by professors Benjamin Graham and David Dodd of Columbia Business School, which laid the intellectual foundation for what would later be called value investing. The first edition was published in 1934, shortly after the Wall Street crash and start of the Great Depression. Among other terms, Graham and Dodd coined the term margin of safety in Security Analysis.

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