Killerbees

Key Takeaways

• Killer bees are specialists who defend companies against unwanted takeovers.
• Strategies used by killer bees include making acquisitions too costly or unattractive.
• The 1980s rise of corporate raiders led to the emergence of killer bees.
• Anti-takeover strategies can sometimes harm shareholder value and lead to legal challenges.
• Courts occasionally block aggressive anti-takeover measures deemed harmful or unreasonable.

What Are Killer Bees?

Killer bees are financial and legal experts who devise anti-takeover strategies to protect companies from hostile acquisitions. The term emerged in the 1980s takeover boom, with tactics that can make a target harder or more costly to buy, though they can draw criticism for hurting shareholder value.

How Killer Bees Operate in Hostile Takeovers

When a company targets another one for acquisition, it will usually first approach its board of directors. If rebuffed, the acquirer could then return with a better bid, walk away, or seek to bypass management by initiating a tender offer directly to shareholders.1

Should takeover advances turn unfriendly or hostile, killer bees may be brought on board. Their job is to come up with feasible ways to make life uncomfortable for the prospective buyer, similar to how their namesake stings its victims when provoked until they back off and go away.

Killer bees rose to prominence during the 1980s hostile takeover craze. Back then, a category of investors with deep pockets, known as raiders, began buying undervalued companies and then controversially dismembering them to bag a quick profit. Corporate America wasn't used to this type of behavior and enlisted the help of specialists to defend against these attacks.2

Killer bees would present a series of options to the target's board based on its individual circumstances and the characteristics of the company seeking to buy it. To foil a hostile takeover attempt, they generally aim to make the prey either too expensive to acquire or so unattractive that the predator loses interest.

Strategies Employed by Killer Bees

Following the 1980s, defensive measures known as shark repellents were devised to discourage unfriendly takeover attempts. Popular strategies that killer bees use include:3

Flip-In Poison Pill: Existing shareholders are granted the right to purchase additional shares at a discount, thereby diluting the ownership interest of the hostile party and making it harder and more costly for it to gain control.

White Knight: A friendly company steps in to purchase the target on the verge of being taken over.

Pac-Man: Named after the classic eat-or-be-eaten arcade game, the target company turns the tables on the acquirer by making a takeover bid for it.

Lobster Trap: A provision is passed prohibiting any shareholder with an ownership stake of more than 10 percent from converting convertible securities into voting stock, thus preventing large shareholders from gaining enough votes to force the board to accept the merger.4

Poison Put: A bond is issued that investors can redeem in full before its maturity date.

Litigation, such as standstill agreements, might also be used to delay any takeover.

Criticisms Surrounding Killer Bees' Tactics

Many of the anti-takeover defense strategies that killer bees utilize don't sit well with shareholders. Making the target less attractive or more expensive to buy generally has a habit of eroding shareholder value and potentially crippling the company for years to come.5

The drastic nature of some of these measures, and the frequent inability of regular shareholders to vote on them, has led their legality to be questioned. Not all hostile bidders plan to make a quick buck and ruin companies and, in some cases, being taken over by one of them could be more beneficial from a financial standpoint for existing investors.

Important

The strategies killer bees employ are often controversial and not always favorable to shareholders, prompting the courts to occasionally intervene.

Challenges and Limitations in Using Killer Bees

Over the years, these observations have led the courts to occasionally block companies from employing anti-takeover measures, if they are deemed to be unreasonable. The prospect of intervention from higher powers inevitably means that it is now much harder for killer bees to deliver on their mandates.6