What is a Lady Macbeth strategy?
A Lady Macbeth strategy is a corporate takeover scheme in which a third party poses as a White knight to gain trust, only to then turn around and join the hostile side in a Hostile takeover offer. Behind the scenes, the hostile bidder and the supposed white knight of the target company will collude to achieve their goal of acquiring a company that is trying to resist the bid.
This particular strategy is named after Lady Macbeth, one of Shakespeare’s most fearsome and ambitious characters, who hatches a cunning plan to get her husband, the Scottish general, to kill Duncan, the King of Scotland.
Key points to remember
- A Lady Macbeth strategy is a corporate takeover scheme in which a third party poses as a white knight to gain trust, but then partners with hostile bidders.
- Company officials often seek out a friendly white knight when faced with the prospect of being picked up by a ruthless raider intent on bleeding him dry.
- As part of the Lady Macbeth strategy, acquirers will create the perception of being a heroic flavor so that they can, in unison with the unwanted suitor, gain control of the target on the cheap.
- Named after Shakespeare’s Macbeth, this strategy is rarely used because White Knights are rare and subject to scrutiny before being accepted as allies.
Understanding a Lady Macbeth strategy
One of the biggest fears facing many companies is the prospect of being taken over against their will by a corporate raider then dismantled and sold in pieces. Sometimes rebuffing the advances of these opportunistic investors isn’t enough. Refuse to negotiate and they might find a way to conquer anyway, such as launching a take-over bid directly to shareholders, using a proxy contest or trying to buy the necessary shares of the company on the open market.
If the hostile side manages to muster enough support and dig in their claws, management’s only alternative might be to hope and pray that a white knight gallops onto the scene at the last minute to save the day.
In exchange for certain incentives, such as paying a smaller prime take control of the business than would otherwise be required under competitive bidding conditions, a friendly white knight might be willing to play the role of savior and save the target from the clutches of another potential buyer with the intent to bleed him dry for a quick buck.
Yes, the company still loses its independence. However, the White Knight should at least be friendlier, potentially letting the current management stay on board and business as usual.
Or maybe not. On some occasions, these numbers can dishonestly create this perception in order to gain control of the target cheaply. They take advantage of the target’s desperation and show up the next day with the unwanted suitor management was so desperate to turn away.
Like Shakespeare’s Lady Macbeth character, a deceptive ability to appear noble and virtuous allows these supposed white knights to gain the confidence they need to do their job, potentially at the expense of others. shareholders.
The supposed white knight could align themselves with the hostile bidder by accepting financing in exchange for a majority share or by finding a way to involve them contractually in the acquisition.
Lady Macbeth’s strategy is not at all common. Hostile takeover bids only happen once in a while – and it’s even rarer that a white knight is or could be part of the plot.
Even if a targeted company was looking for a white knight, they would usually have enough knowledge about it. third party to be sure that they would work in cooperation with the beleaguered company instead of betraying it.