Kamikaze Defense (Hostile Takeover) - Explained
What is a Kamikaze Defense?
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What is a Kamikaze Defense?
A kamikaze defense is a strategy used by a target company to foil a takeover bid by another company. When this strategy is used by a company, it entails the target company inflicting harm on itself to make itself unattractive to the acquirer. This self-harm can be in form selling off its tangible assets or acquiring bad and unprofitable assets. Kamikaze defense involves the use of detrimental acts to foil a takeover attempt by an acquiring company. This strategy is often used by a firm that is desperate about not being acquired or does not want to end its corporate life that easily.
A Little More on What is a Kamikaze Defense
The goal of a kamikaze defense is to thwart a takeover bid, even if it entails causing harm to the affected company, its finances, and outlook. Companies that are desperate about not falling into the hands of an acquirer use the kamikaze strategy. This strategy includes a target company selling off its assets or increase its debt load by purchasing bad and unattractive assets. When there is a decline in the value of a company or the available cash and there is excess debt load, it becomes unattractive to takeover. There are other variants of the kamikaze defense strategy, thee include Fatman strategy, scorched earth tactic, sales of crown jewels and others. Generally, a kamikaze defense is used to rebuff a takeover attempt by corporate raiders. In a takeover bid, the acquiring firm is expected to build a stake in the target company to a level before making its takeover intention known. For a company whose board of directors is against this takeover bod, a kamikaze can be employed to foil or thwart the bid. A kamikaze defense is an unfriendly tactic that seeks to make a target company unattractive to acquirers by building up a huge debt load or selling off its most tangible assets. Kamikaze defense weakens the target company and causes a great damage to its finance and operations, but the ultimate end it to thwart a takeover bid.
- Hostile Takeover
- Power Struggles in Corporate Governance
- Tender Offer
- Proxy Contest
- White Knight and Pac Man Defenses
- Incentivizing Acquirer Defense
- Asset and Liability Defenses
- Shark Repellant Defense
- Poison Pill Defense
- Gray Knight Defense
- Macaroni Defense
- Jonestown Defense