What Is the Fat Man Method?
The fat man method is a defensive switch made by way of a company in an effort to thwart a takeover check out. If a objective company’s executives download an unwanted offer for the company that shareholders may well be at risk of merely settle for, they quickly take on new debt and purchase undesirable assets in an attempt to make the company an unattractive gain.
In several words, the executives turn their own company proper right into a bloated mess, overloaded with improper or questionable assets, quite a lot of debt, and too little cash.
Key Takeaways
- A fat man method is determined by piling up debt and acquiring questionable assets to stop an organization takeover.
- The strategy is carried out by way of company executives unwilling to cede keep an eye on.
- Shareholders most often disapprove of the fat man method as it involves sabotaging the company’s potency.
Working out the Fat Man Method
Corporate acquisitions are a no longer peculiar prevalence throughout the industry global, as companies expand by way of gobbling up warring parties or complementary firms. The target company’s board of directors could also be open to the theory of marketing, specifically if the associated fee offered is decent. Or, the executives would possibly resist ceding keep an eye on and make a decision to struggle the takeover.
Over time, numerous anti-takeover measures were concocted to have the same opinion companies thwart advances. The fat man method is without doubt one of the most aggressive moves.
Fatten Up
As its determine implies, the target company fattens itself up in an effort to turn out to be as unattractive as possible to its would-be acquirer. This is finished basically by way of burdening the company with new assets, in particular those that the acquiring company is known to dislike.
In an over the top case, the target company can alternate its profile absolutely, turning into a different more or less company. Finally, it becomes a company with a lot of debt on its balance sheet. The acquirer would possibly shift its attention to further attractive objective companies.
Disadvantages of the Fat Man Method
The effectiveness of the fat man method remains mixed at easiest. Similar to the kamikaze coverage, a tactic that involves selling moderately than acquiring assets, it is going to perhaps inflict irreversible damage on the company. Shareholders definitely may not welcome the alternate.
Fat man strategies are extraordinarily self-destructive and really tricky to tug off, specifically if institutional patrons are looking at.
The possibilities of pulling off a fat man method are fairly narrow. A company would need to know of a threatened takeover neatly in advance to tug it off. Even deliberately terrible corporate expenditures take time.
When Shareholders Resist
Each different notable hurdle is shareholder resistance. Few shareholders would endorse a plan that destroys the momentary long run of a company they invest in. Institutional patrons be able to thwart this kind of plan.
Institutional patrons, similar to mutual budget and pension budget, acquire huge blocks of stock and incessantly exercise really extensive impact in a company’s boardroom. They are liable to be receptive to a decent takeover value, or no less than liable to find it irresistible to any other that sabotages the company’s financial potency for the foreseeable long run.
