Killer Bees

Killer bees are organizations or people, such as investment bankers, accountants, lawyers, and tax experts, who aid target businesses in fending off potential suitors.

Their responsibility is to design and implement anti-takeover frameworks, which typically entails making the target less alluring, expensive, or hard to acquire. In the world of m&as, "killer bees" are businesses or people who help a company fend off a hostile takeover.

Although they employ a much more comprehensive array of takeover defense methodologies, killer bees are directly analogous to white knights. Because of the hostile takeover defenses they use, they frequently behave vigorously, which contributes to their title.

Board of Directors play a very important role since the company confronts them while taking into account acquisition of any sort. For instance - if a proposal was rejected, there is a high chance that the buyer might try to persuade his offer by any means.

As harsh as it may sound,this can take a brutal turn as takeover could be hostile. Now they come into effect by making the picture darker for the buyer, so the buyer loses his interest in it.

History and Nature

In the 1980s, the trend of hostile takeovers gave rise to killer bees' popularity. Back then, a class of wealthy investors known as "raiders" started purchasing mispriced businesses and contentious dismantling them for a fast buck.

Because corporate America was unaccustomed to this behavior, it sought the assistance of experts to fend off these assaults. Depending on the specifics of the target's situation and those of the firm looking to purchase it. 

They typically attempt to make the prey either too difficult to acquire or too unappealing that the predator loses enthusiasm to do an hostile takeover attempt.

Nature 

Killer bee characteristics can differ greatly. Anybody can become a killer bee, including a private citizen, a lawyer or legal firm, an account manager, an advisory firm, or an institutional investor.

Whatever shape the they take, its only goal is to come up and support carrying out a strategy that allows a target company to thwart a hostile power grab. 

They intend to either :

• Consider making it extremely expensive and challenging to acquire the takeover target
• Make it so unappealing that the potential acquirer gives up the desire to pursue the takeover.

Who Can Take the Role of Killer Bees?

They evaluate the particular takeover scenario they are presented with, influencing the takeover defense strategies they employ. Then, they choose whichever takeover defense they believe has the best chance of working.

Supporting the targeted company in incurring the least amount of costs or harm necessary to thwart the hostile takeover is a secondary consideration. That incidental factor, though, pales in comparison to the overriding priority of preventing the takeover.

The People Poison Pill and the Pac-Man Defense are two well-liked killer bee defenses.

Methods of Killer Bees 

After the 1980s, defensive strategies widely recognized as shark repellents were developed to thwart hostile takeover attempts. As a result, killer bees commonly employ the following methods:

1. Flip-In Poison Pill

A target company may employ a flip-in poison pill as a deterrent or preventative measure against a hostile takeover. This strategy enables current shareholders to buy more stock in the business that is being sought after at a rebate but not acquiring shareholders.

By oversaturating the market with new shares, the value of the ones the acquiring company has already invested in is diminished, lowering its controlling interest and thereby making it more difficult and expensive for the buyer to assume charge.

Additionally, it enables investors who buy the new shares to profit immediately from the discrepancy between the subsidized purchase price and the current market price.

2. White Knight

A "friendly" person or business purchases a company at a fair price when it is about to be acquired by an "unfriendly" bidder or acquirer. This is known as a "white knight" hostile takeover defense, whereas "Black knight" is the common moniker for the hostile bidder.

A white knight acquisition is still preferred over a hostile takeover even though the target company is no longer independent.

In contrast to a hostile takeover, a white knight scenario typically results in current management staying in place and investors receiving higher compensation for their shareholdings.

3. Pac-Man

Pac-Man's video game is where the term "Pac-Man Defense Strategy" originates. In this game, consuming a power bullet allows a player to kill the ghosts trying to kill them.

Taking control of the acquirer is the goal of this strategy, also known as the "Pac-Man Defense." It's an aggressive tactic, but its purpose is the same as any defensive one: to make the acquirer's hostile takeover attempt very challenging so that they give up.

This strategy involves the target company taking actions that could shock the investor. The target company might, for instance, take out a sizable loan or waste reserves. Purchasing shares of the company being acquired is another strategy under it.

Put another way, a target business utilizes a Pac-Man Defense when a hostile takeover attempt is attempted against them.

The company requires significant assets for a Pac-Man Defense to perform. In addition, because Pac-Man Defense entails purchasing the aggressive acquirer, the company in question must have sufficient resources to be regarded as a legitimate threat.

The target has several options for raising the money required for a Pac-Man defense, including selling non-core assets and non-core business units, borrowing money, and employing its cash reserves.

4. Lobster Trap

A defense of this type seeks to capture large targets while ignoring tiny ones. The particular company may devise a policy that prohibits large shareholders from attempting to convert their equities into voting stocks as part of this approach. 

Essentially, it prevents large shareholders from increasing their voting privileges. Such a strategy is effective only when a business issues convertible securities, such as convertible bonds, convertible preference shares, convertible warrants, and convertible debentures. 

By doing so, the influence of significant stakeholders is likely decreased.

For instance, Company A wants to fend off Company B's hostile takeover attempt. An insurance company owns 13% of its voting shares, the former learns.

In addition, the same insurance company is the owner of convertible warrants that could increase its voting power by 7%. Therefore, Company A's management adds a "Lobster Trap" clause to ensure the insurance company won't aid the hostile bidder.

As a result, the insurance company cannot transfer the warrants into a controlling stake and grant the hostile bidder additional voting privileges.

5. Poison Put

In a poison put, the target firm raises a bond that shareholders can retrieve well before the bond's maturity date as a takeover defense tactic. The purpose of a poison put is to increase the price a business will have to pay to acquire a target firm.

Criticism

The shareholder community is not happy with many of the tactics used by killer bees to defend against takeovers. By lessening a target's attractiveness or making the target more expensive to acquire, shareholders are typically deprived of their profits and may be unable to maintain a viable business for the foreseeable future.

Due to their extreme nature and inability to receive votes by common shareholders, the legal basis for some of these indicators has been questioned.

Because hostile takeovers are not all about destroying businesses and making a quick buck, some may benefit existing shareholders at an affordable cost.

Researched and authored by Drishti Kohli | LinkedIn

Free Resources

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• Initial Public Offering (IPO)
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• Letter of Intent (LOI)
• Memorandum of Understanding (MoU)
• Merger