Fat Man Strategy Definition
A fat man strategy is a tactic used by a target company to foil or prevent a hostile takeover. When this strategy is used, the target company defends or protects itself by buying the assets of another company or acquiring the company. When this happens, the target company is referred to as a “fat man” and becomes unattractive in a hostile takeover.
The directors of the target company ensure that the acquisition of assets or business increases its debts or reduces the available cash of the target company.
A Little More on What is the Fat Man Strategy
When a target company uses a fast man strategy to foil a hostile takeover, it renders itself completely unattractive to the acquirer. Most times, the additional debts incurred by the target company in a bid to become a fat man are irreversible but at the same time protects it from a hostile takeover.
A fat man strategy is often likened to a kamikaze defense strategy but slightly different from other kamikaze defense strategies. While the fat man strategy involves acquiring additional assets or company, other kamikaze strategies entail divesting of assets.
There are no clear benefits of the fat man strategy given that the target company incurred damages and debt that are largely irreversible. Oftentimes, executing a fat man strategy does not sit well with most directors of a target company due to the disadvantages it offers.
A major disadvantage of this strategy is that it must be executed before a hostile bid is tendered, hence, there would be no time to execute this strategy. There are other strategies a target company can use to foil a hostile takeover, this includes suicide pill, poison pill or scorched earth policy, these are better alternatives to the fat man strategy.