What Is a Kamikaze Defense?
A Kamikaze defense is a defensive strategy some of the time resorted to by a company's management to prevent a takeover by another company.
While these strategies are named after the self-destructive kamikaze assaults utilized by Japanese pilots during World War II, they rarely obliterate the company. In any case, a kamikaze defense includes going to lengths that are impeding to the firm's business operations or financial condition. The thought is to reduce the target company's engaging quality to a hostile bidder. A kamikaze defense is frantic, however the hope is that the takeover bid will be thwarted.
Grasping Kamikaze Defenses
A company where management doesn't maintain that it should fall into another gathering's hands might try a kamikaze defense as a last resort.
In a planned acquisition process, a closely involved individual will typically build up a small stake in the target company and approach the board of directors with an offer to buy the company. Assume the board rebukes the offer, which would constantly be the case on the off chance that the board and its financial advisors accepted that the offer substantially undervalued the company. Then, at that point, the closely involved individual could expect a more aggressive position to assume control over the company. Assume the eventual acquirers feel like they are wasting time with additional squeezing talks. In that case, they might endeavor a hostile takeover against the board's desires.
In response, the target company could search out a white knight. This friendly party would generally hold together the current business operations of the company. Existing management would generally lean toward that instead of upsetting or destroying their company, which is much of the time the outcome of an effective hostile takeover.
One more takeover defense mechanism is the adoption of a poison pill. That is generally viewed as a shareholder-unfriendly move, yet it is gentle in comparison to full kamikaze strategies. A kamikaze defense might prevail eventually, however the company would leave itself in a debilitated state.
Kamikaze defenses are frequently embraced by management to safeguard their own interests or at the command of the company's founders and their heirs. Kamikaze defenses rarely work to the benefit of ordinary shareholders.
Types of Kamikaze Defenses
There are several unique ways that companies can make themselves less appealing takeover targets, ordinarily at impressive cost to themselves.
Selling the Crown Jewels
At the point when a company [sells the crown jewels](/offer of-crown-jewels-takeover-defense), management offers off its best assets to make it a less appealing target and raise cash.
For instance, a striving firm could claim important commercial real estate in key areas. The hostile takeover may be pointed toward getting that real estate at below-market prices. By selling that commercial real estate in the market, the firm could get more money for itself and discourage the takeover. Then again, this kamikaze defense likewise means the company loses the utilization of that property for future operations, which could profoundly damage.
Scorched Earth Policy
The scorched earth policy is named after an ethically questionable and frequently illegal military strategy in which a withdrawing armed force obliterates yields and supplies to dial back a foe advance. At the point when a company's management seeks after a scorched earth policy, they likewise try to eliminate assets that may be significant to their rivals and run legal risks.
For instance, they could fire skilled employees who are hard to supplant and fail to perform appropriate maintenance, eventually obliterating equipment. This kamikaze defense can create serious legal issues in the event that workers are jeopardized or the gatherings behind the takeover bid get a injunction.
Fat Man Strategy
In the fat man strategy, the company's management loads up on debt and obtains bunches of assets or even different firms to make the company a less appealing takeover target. At its best, the fat man strategy essentially makes the target company too large and awkward for the other company to secure. The subsequent larger company could in any case be reasonable, just too big to buy.
Then again, the kamikaze viewpoint becomes an integral factor on the off chance that the new acquisitions were overrated or a poor fit for the company. Assuming that occurs, the takeover target could endure the hostile takeover endeavor just to fail later on due to unnecessary debt.
- A Kamikaze defense purposely incurs damage for the company to prevent a takeover.
- Kamikaze defenses incorporate selling the crown jewels, scorched earth policies, and the fat man strategy.
- A Kamikaze defense is a defensive strategy some of the time resorted to by a company's management to prevent a takeover by another company.