What is the Kamikaze Defense?
A kamikaze defense is a method for deterring a potential acquirer from purchasing a company.
How Does the Kamikaze Defense Work?
The kamikaze defense is named after the suicide tactics of Japanese pilots during World War II. Let's say Company ABC makes a bid to buy Company XYZ. The XYZ board does not want to sell the company, but Company ABC goes directly to the Company XYZ shareholders and offers to buy their shares for a 10% premium.
Fearful that Company ABC may be successful in its efforts, Company XYZ sells its key intellectual property and randomly buys Company 123, which makes cigarettes and horsemeat. Company ABC finds Company XYZ less attractive and drops its bid.
Why Does the Kamikaze Defense Matter?
The kamikaze defense is near suicide in that the board has to be willing to nearly kill the company in order to save it from acquisition. This is very risky, and in some cases the shareholders oppose the effort. For this reason, the kamikaze defense is often a last resort.