Killer Bees

Killer bees are firms or advisors — such as investment bankers, lawyers, accountants, and tax specialists — hired by a target company to defend against an unwanted takeover. Their role is to design and implement anti-takeover defenses that make the target harder, more costly, or less attractive to acquire.

Background

The term gained prominence in the 1980s during a wave of hostile takeover activity by so-called “raiders” who bought undervalued companies and often dismantled them for profit. Corporations responded by hiring specialists to develop defensive tactics to protect boards, management, and long‑term value.

When they’re used

An acquirer typically approaches a target’s board first. If rebuffed, the acquirer may improve its offer or bypass management with a tender offer directly to shareholders. When a takeover turns hostile — i.e., the board and bidder are at odds — companies often bring in killer bees to propose and implement defensive measures.

Common defensive strategies

These defenses, sometimes called “shark repellents,” aim to deter or frustrate hostile bids:

• Flip‑in poison pill — Existing shareholders get rights to buy additional shares at a discount if a hostile bidder crosses a threshold, diluting the bidder’s stake and making takeover costly.
• White knight — A friendly company makes a competing purchase offer to protect the target from a hostile acquirer.
• Pac‑Man defense — The target attempts to acquire the hostile bidder, turning the tables on the aggressor.
• Lobster trap — Prevents large holders (often above a set threshold, e.g., 10%) from converting convertible securities into voting stock, blocking accumulation of voting control.
• Poison put — Bond covenants allow bondholders to demand early repayment if control changes, increasing the takeover’s financial burden.
• Legal and contractual measures — Standstill agreements, litigation, or procedural tactics used to delay or complicate an acquisition.

Criticisms and limits

Anti‑takeover defenses can be controversial. They may:

• Reduce shareholder value by discouraging bids that could be financially beneficial.
• Entrench existing management and prevent corrective market discipline.
• Bypass shareholder approval in some cases, raising fairness concerns.

Courts and regulators have periodically intervened to block or limit unreasonable defenses, and judicial scrutiny has made it harder to deploy certain measures without clear justification.

Key takeaways

• Killer bees are external advisors who design defenses to thwart hostile takeovers.
• Common tactics include poison pills, white knights, Pac‑Man moves, lobster traps, poison puts, and legal delays.
• While these strategies can protect a company’s strategy and stakeholders, they also risk harming shareholder value and face legal constraints.