Fat Man Strategy
What Is the Fat Man Strategy?
The fat man strategy is a defensive move made by a company to ruin a takeover endeavor. In the event that a target company's executives receive an undesirable offer for the company that shareholders may be leaned to acknowledge, they rapidly assume new debt and purchase unwanted assets trying to make the company an ugly purchase.
As such, the executives transform their own company into a swelled wreck, over-burden with unsuitable or problematic assets, too much debt, and too little cash.
Figuring out the Fat Man Strategy
Corporate acquisitions are a common occurrence in the business world, as companies develop by eating up opponents or complementary businesses. The target company's board of directors might be available to selling, particularly on the off chance that the price offered is fair. Or on the other hand, the executives could oppose ceding control and choose to fight the takeover.
Throughout the long term, a number of anti-takeover measures have been prepared to assist companies with obstructing advances. The fat man strategy is quite possibly of the most aggressive move.
Step by step instructions to Fatten Up
As its name suggests, the target company fattens itself up to become as ugly as conceivable to its future acquirer. This is accomplished predominantly by troubling the company with new resources, especially those that the getting company is known to loathe.
In an extreme case, the target company can change its profile completely, turning into an alternate sort of company. Regardless, it turns into a company with a ton of debt on its balance sheet. The acquirer might shift its thoughtfulness regarding more alluring target companies.
Hindrances of the Fat Man Strategy
The viability of the fat man strategy stays mixed, best case scenario. Like the kamikaze defense, a strategy that includes selling as opposed to gaining assets, it can incur irreversible damage for the company. Shareholders positively won't invite the change.
Fat man strategies are profoundly foolish and extremely hard to pull off, particularly on the off chance that institutional investors are watching.
The possibilities pulling off a fat man strategy are somewhat thin. A company would have to know about a compromised takeover well in advance to pull it off. Even purposely terrible corporate expenditures take time.
At the point when Shareholders Resist
Another remarkable hurdle is shareholder resistance. Not many shareholders would support a plan that obliterates the short-term eventual fate of a company they invest in. Institutional investors have the power to defeat such a plan.
Institutional investors, for example, mutual funds and pension funds, buy tremendous blocks of stock and frequently exercise significant influence in a company's boardroom. They are probably going to be open to a respectable takeover price, or if nothing else prone to favor it to an alternative that undermines the company's financial performance for the foreseeable future.
Features
- The strategy is carried out by company executives reluctant to surrender control.
- A fat man strategy depends on stacking up debt and procuring problematic assets to prevent a corporate takeover.
- Shareholders regularly object to the fat man strategy as it includes undermining the company's performance.
