What is Kamikaze Defense?
217 reads · Last updated: December 5, 2024
A Kamikaze defense is a defensive strategy sometimes resorted to by a company's management to prevent a takeover by another company.While these strategies are named after the suicidal kamikaze attacks used by Japanese pilots during World War II, they rarely destroy the company. Nevertheless, a kamikaze defense involves taking measures that are detrimental to the firm's business operations or financial condition. The idea is to reduce the target company’s attractiveness to a hostile bidder. A kamikaze defense is desperate, but the hope is that the takeover bid will be thwarted.
Definition
Kamikaze Defense is a strategy employed by a company's management to prevent a takeover by another company. Although these strategies are named after the suicidal kamikaze attacks used by Japanese pilots during World War II, they rarely destroy the company. However, Kamikaze Defense involves taking measures that are harmful to the company's business operations or financial condition. The idea is to make the target company less attractive to hostile bidders. Kamikaze Defense is desperate but aims to thwart takeover bids.
Origin
The name Kamikaze Defense originates from the kamikaze attacks by Japanese pilots during World War II. This strategy began to be adopted by companies during the corporate merger and acquisition waves of the late 20th century as an extreme measure to fend off hostile takeovers.
Categories and Features
Kamikaze Defense strategies can be categorized into various types, including but not limited to: selling key assets, increasing debt burden, or entering into unfavorable contracts. The common feature of these measures is that they may negatively impact the company's long-term health but can reduce the company's attractiveness to acquirers in the short term.
Case Studies
A typical case is the American company RJR Nabisco in the 1980s, which increased its debt significantly to fend off a hostile takeover. Another example is Yahoo in 2008, which signed unfavorable advertising contracts to resist Microsoft's acquisition bid.
Common Issues
Investors might worry that Kamikaze Defense strategies could negatively impact the company's long-term value. Additionally, a common misconception is that these strategies are always effective, whereas they often only delay or complicate the acquisition process rather than completely prevent it.
