What are Killer Bees?
In the mergers and acquisitions landscape, “killer bees” refers to companies or individuals that assist a company in avoiding a hostile takeover. They are similar to white knights, but utilize a much wider range of takeover defense strategies. Killer bees derive their name partially from the fact that they typically act very aggressively with the hostile takeover defenses they employ.
- Killer bees help takeover targets successfully fend off a hostile takeover attempt.
- They typically use very aggressive takeover defense tactics.
- A killer bee may be an individual (such as an attorney) or a firm (such as an investment bank).
The Nature of Killer Bees
The precise nature of a killer bee can vary widely. A killer bee may be anything from a private individual to an attorney or law firm, an accountant, a consulting firm, or an investment bank.
Whatever form the killer bee comes in, its sole purpose is to devise and help execute a plan that enables a target company to foil a hostile takeover attempt. They aim to either (A) make the takeover target prohibitively difficult and/or expensive to acquire, or (B) render it so unattractive that the potential acquirer loses interest in pursuing the takeover.
The takeover defense tactics used by killer bees are determined by their assessment of the specific takeover situation they are confronted with. Killer bees employ whatever takeover defense they deem most likely to succeed.
A secondary consideration is that of helping the targeted company suffer the least amount of expense or damage necessary to fend off the hostile takeover. However, that secondary consideration runs a distant second to the primary goal of thwarting the takeover.
Two popular killer bee strategies are the Pac-Man Defense and the People Poison Pill.
1. Pac-Man Defense
The “Pac-Man Defense” is a particularly aggressive takeover defense strategy, one in which the target company attempts to turn the tables on its potential acquirer.
As the acquirer is attempting to buy up enough shares to obtain a controlling interest in the target company, the target begins employing the same strategy against the aspiring acquirer – buying up shares of its stock, aiming to gain a controlling interest over the acquiring company. Faced with the threat of losing control of its own destiny, the acquirer may back off and abandon its hostile takeover attempt.
2. People Poison Pill
Another extreme strategy that may be recommended by a killer bee is that of the “People Poison Pill.” In this strategy, the killer bee advises the target company to amend its corporate charter to require the resignation of all key managing or executive individuals in the event of a hostile takeover. This can be a very effective strategy if the takeover company employs a number of key personnel who are considered vital to its ongoing success.
For example, a software firm’s head of product development, who has been responsible for the creation of all its major products, may be considered indispensable to the company’s ongoing successful operation. Faced with the loss of such individuals and the prospect of having to form an entirely new management team that is unfamiliar with the target company’s business, the acquirer may decide it no longer sees the takeover target as desirable.
We hope you’ve enjoyed reading CFI’s explanation of killer bees. CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful: