Killer bees are entities like investment bankers, accountants, attorneys, and tax specialists that spring into action to help target firms avoid being acquired by unwanted suitors. Their mission is to develop and implement anti-takeover defense strategies aimed at making the target company less appealing, more difficult, or costlier to acquire.
Key Takeaways
- Killer bees are professionals who assist target firms in dodging unwanted takeovers.
- They design strategies that make acquisitions more challenging or expensive.
- Killer bees emerged prominently in the 1980s amid a wave of corporate raids.
- The tactics used by killer bees are often controversial, disputed by shareholders, and sometimes face legal challenges.
Understanding Killer Bees: Guardians Against Hostile Takeovers
When an acquisition bid is made, it typically begins with an approach to the company’s board of directors. If the initial offer is refused, the bidder could return with a better proposal, withdraw their interest, or address shareholders directly through a tender offer. Should the takeover attempts become hostile, killer bees are called upon. They devise strategies to deter the predatory acquisition by making the target unattractive or prohibitively expensive.
The Emergence of Killer Bees
In the 1980s, opportunistic investors known as raiders began acquiring undervalued companies, only to dismantle them for quick profits. To counter these aggressive advances, companies sought the expertise of killer bees. These specialists would assess each situation individually, recommending tactics to stave off hostile takeovers, often by drastically changing the financial landscape of the targeted company to render the takeover infeasible.
Methods of Killer Bees: Innovative Defense Tactics
Post-1980s, a suite of defensive measures called shark repellents emerged. Common strategies employed by killer bees include:
- Flip-In Poison Pill: Grants existing shareholders the opportunity to buy more shares at a discount, diluting the potential acquirer’s stake and increasing their acquisition costs.
- White Knight: Involving a friendly company to buy the target, thwarting the hostile acquiree’s plans.
- Pac-Man: Named after the classic arcade game, this strategy involves the target company initiating its own takeover plan against the original acquirer.
- Lobster Trap: Prevents large shareholders with more than 10% ownership from converting their securities into voting stock, reducing their ability to force a merger.
- Poison Put: Issues bonds that investors can redeem before their maturity date to levy financial stress on the would-be acquirer.
Litigation, such as standstill agreements, might also be leveraged to put takeover bids on hold.
Criticism of Killer Bees: A Double-Edged Sword
While employing killer bee strategies can put up strong defenses against hostile takeovers, they often draw criticism. Some tactics, aimed at making the target less attractive, can inadvertently reduce shareholder value and harm the company long-term. Since these measures are sometimes enacted without shareholder votes, their legitimacy may come under scrutiny. Additionally, not all hostile takeovers are detrimental; some could provide greater financial benefits to shareholders.
Important
The controversy surrounding killer bee strategies leads to occasional court interventions, questioning the legality and benefits of the anti-takeover actions they implement.
Limitations and Legal Challenges of Killer Bees
As the courts grow more attentive to shareholder interests, companies find it increasingly challenging to deploy some of these aggressive anti-takeover tactics. The prospect of judicial blocks curbs the killer bees’ ability to deliver their once-impenetrable defense plans effectively.
Related Terms: Hostile Takeover, Raiders, Shark Repellents, Mergers and Acquisitions.
References
- Investor.gov. “Tender Offer”.
- Lipton, Martin. “Twenty-Fice Years After Takeover Bids in the Target’s Boardroom: Old Battles, New Attacks and the Continuing War”. American Bar Association, vol. 60, no 4, August 2005, pp. 1371.
- Shah, Chirag. “A Review of Defensive Strategies Used in Hostile Takeovers”. Western Michigan University, 1996, pp. 13-22.
- Rock, Edward. “Securities Regulation as Lobster Trap: A Credible Commitment Theory of Mandatory Disclosure”. Cardozo Law Review, vol. 23, no. 02-05, 2002, pp. 700.
- Lipton, Martin. “Twenty-Fice Years After Takeover Bids in the Target’s Boardroom: Old Battles, New Attacks and the Continuing War”. American Bar Association, vol. 60, no 4, August 2005, pp. 1370-1373.
- Harvard Law School Forum on Corporate Governance. “Takeover Law and Practice: Current Developments”.
