Kamikaze defense – definition and meaning
A kamikaze defense occurs when the target company in a hostile bid makes itself less attractive. The company may do this by either selling off some assets or making acquisitions that put off the hostile bidder. It is a defense strategy against corporate raiders that target companies sometimes use. Another kamikaze defense strategy is for the target company to increase its debt load. It may also reduce its available cash.
A hostile bid is a situation in which a company wants to buy another company, but the target company is not happy. The target company does not want the bidder to acquire it. If the bidder succeeds, we call it a hostile takeover.
There are several different strategies the target company can take. For example, there is the sale of the crown jewels strategy or the Fatman strategy. There is also the scorched earth strategy.
- The Fatman Strategy involves buying other companies or assets to make the target company appear fat and bloated. For example, the target company may make an acquisition that significantly raises its debt load.
- The Sale of the Crown Jewels Strategy means selling off the company’s most coveted and prized assets. This reduces its attractiveness to the corporate raider.
- The Scorched Earth Policy in business is similar to the military strategy. Retreating armies destroy crops and infrastructure so that the invaders cannot use them. In business, the target company sells off assets, takes on high debts, or takes other measures.
In other words, with a scorched earth policy, the company makes sure that the hostile bidder cannot get what it is seeking.
All the kamikaze defense strategies have one thing in common. They all aim to make the target company less appealing. In other words, to put off the hostile bidder.
MBASkool.com says the following regarding the term:
“It is a type of defense mechanism used by the target company of a hostile takeover to prevent itself being acquired by another company.”
The Kamikaze Defense is a dangerous strategy because the company could end up killing itself.
Kamikaze defense – origin
The term kamikaze (神風) means ‘divine wind’ or ‘divine spirit’ in Japanese. In World War II, Kamikaze were military aviators who initiated suicide attacks for the Empire of Japan.
Japanese pilots would crash their airplanes into Allied naval vessels. However, they would not bail out. In other words, the airplanes would crash into ships with their pilots still inside them.
Kamikaze attacks during WWII cost many human lives. Approximately 3,862 Japanese pilots killed themselves crashing their airplanes into Allied ships. More than 7,000 navy personnel lost their lives due to kamikaze attacks.
Kamikaze defense – last resort
A kamikaze defense strategy may be a quasi-suicidal move. Put simply, the company, by trying to make itself unattractive, might damage itself severely. It is a highly risky strategy. Therefore, it is an option of last resort.
However, unlike WWII pilots, when a company opts for a kamikaze strategy, it does not want to die. It is not really a suicide mission.
The company just hopes to make itself unattractive enough to make the hostile bidder go away.