Fat Man Strategy

When one company wants to take over another, it’s probably because it’s a lean, mean, profit-making machine. When the company that’s getting the up-down from a hostile bidder doesn’t want to be bought by that other company, it may deploy the “fat man strategy.”

The fat man strategy is a defensive move by a business where they “bulk up” on business “fat,” like debt, and decrease business “muscle,” or cash reserves and liquid assets. The idea is that the defensive company says to themselves “maybe if I put on some weight and start looking less attractive, that other company will go away and leave me alone…”

As funny as it sounds, the fat man strategy can be serious business. A company employing this strategy could potentially make things difficult for itself down the road by taking on new debt and reducing cash, just to ward off imperialist company takeovers. After all, it wouldn’t be much of a defense if the tactics were easy to reverse.

By adding more assets, the defensive company is opening itself up to a new world of risks. Even worse, if these transactions take too long, the company could get bought out before they’re finished going through.

Whoops. Worth it? Maybe…but maybe not.