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Finance From A to Z: Week 12 (L)

Finance From A to Z: Week 12 (L)

Last week, we discussed the intricacies, motivators and consequences of the Kamikaze Defence as it pertains to companies that are at risk of a hostile takeover. Towards the end, of that piece, we introduced the concept of the White Knight strategy - wherein it was suggested that this course of action may be a welcome alternative to a Kamikaze strategy. In this week’s submission, however, we will take a closer look at how the white knight strategy can go horribly wrong! So, here is our Finance A to Z for this week with the letter L, for the Lady Macbeth Strategy!

L is for the Lady Macbeth Strategy:

Lady Macbeth is a character in Shakespeare's Macbeth, characterised as crafty, vicious, and ambitious. She is both strong and influential and plays the part of a devoted servant to win the King of Scotland's trust while covertly working on a scheme for her husband, the Scottish general, to assassinate him. In essence, she is able to realize her goals thanks to her pretense and false loyalty. These personality traits might hint at what the Lady Macbeth strategy (in the world of finance) actually entails.

What is the Lady Macbeth Strategy?

The Lady Macbeth Strategy is a corporate takeover tactic used in mergers and acquisitions, where a corporation that has no interest in buying a target company plays the role of a white knight to win over the target company's management. During this process, it might also be possible to gain data that the target firm does not divulge to its potential buyers. After gathering all the necessary data, the white knight teams up with other hostile bidders and conspires against the target company to acquire it for a low price.

Implementation of the Lady Macbeth Strategy

As reminiscent of a Game of Thrones plot line as the Lady Macbeth strategy may seem, it — in actuality — is rarely implemented for various reasons. Chief among these reasons is the fact that using this deceitful strategy inherently breeds feelings of mistrust and disloyalty between the old and new management. Moreover, in the case that a target company actively seeks out a white knight in lieu of a kamikaze defence, the likelihood of them not having enough knowledge of this white knight company to be aware of any hidden ambitions is low. In fact, target companies would normally have enough knowledge of this third party to feel certain that they would support the embattled company instead of betraying it.

That’s all for this week's submission. As always, thank you for reading and be sure to leave any thoughts below in the comments. See you next week!

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