DEFINITION of Kamikaze Defense
Kamikaze defense is a type of takeover defense mechanism sometimes resorted to by a company to avoid being taken over. Not so drastic as ending its corporate life, a kamikaze defense nevertheless involves inflicting self-harm, or taking measures that are detrimental to business operations or financial condition to reduce its attractiveness to a hostile bidder. A kamikaze defense is desperate but the hope is that the takeover bid will be thwarted.
BREAKING DOWN Kamikaze Defense
A company that does not want to fall into enemy hands may as a last resort try a kamikaze defense. Normally, in an intended acquisition process, an interested party will build up a small stake in the target company and approach the Board of Directors with an offer to buy the company. If the board rebuffs the offer, which would invariably be the case if the board and its financial advisors believed that the offer "substantially unvalued" (common M&A-speak) the company, the interested party could assume a more aggressive stance to take over the company. If the would-be acquirer feels like it is getting nowhere with more pressing negotiations, it may go hostile with a tender offer (to circumvent the intransigent board) or launch a proxy battle for control of the company.
In response, the target company could seek out a white knight, a friendly party that would generally hold together current business operations of the company instead of disrupting or dismantling it, as a hostile bidder would conceivably undertake, in the view of the besieged company. Another takeover defense mechanism is adoption of a poison pill. This is generally considered a shareholder-unfriendly move, but it is mild in comparison to more kamikaze-like actions like making a dilutive acquisition, loading up on debt, or "selling crown jewels" of the company - all with the sole purpose of fighting off a hostile bidder. A kamikaze defense may succeed in the end, but the company would leave itself in a weakened state.