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Fat Man Strategy

What is 'Fat Man Strategy '

A takeover defense tactic that involves the acquisition of a business or assets by a target company. The strategy is based on the premise that the bulked-up company - the "fat man" - would have reduced appeal to a hostile bidder, especially if the acquisition increases the acquirer's debt load or decreases available cash.

Explaining 'Fat Man Strategy '

This is a type of "kamikaze" defense tactic, which inflicts potentially irreversible damage on a company to prevent it from falling into hostile hands. However, it involves adding assets rather than divesting them as is the case with other kamikaze defense strategies. A disadvantage of this tactic is that acquisition candidates need to be identified well in advance of a hostile bid, otherwise there may be insufficient time to complete a fat man transaction.


Further Reading


Heterogeneous agent models in economics and finance
www.sciencedirect.com [PDF]
… bubbles and trend following, sudden crashes and mean reversion, clustered volatility and fat tails in the … related to Keynes' view that 'expectations matter', to Simon's view that economic man is boundedly … eg as measured by relative profitability and how much this strategy is used …

The'fat tax': economic incentives to reduce obesityThe'fat tax': economic incentives to reduce obesity
discovery.ucl.ac.uk [PDF]
… bubbles and trend following, sudden crashes and mean reversion, clustered volatility and fat tails in the … related to Keynes' view that 'expectations matter', to Simon's view that economic man is boundedly … eg as measured by relative profitability and how much this strategy is used …

Fat as a Floating SignifierFat as a Floating Signifier
www.oxfordhandbooks.com [PDF]
… bubbles and trend following, sudden crashes and mean reversion, clustered volatility and fat tails in the … related to Keynes' view that 'expectations matter', to Simon's view that economic man is boundedly … eg as measured by relative profitability and how much this strategy is used …

A proposed fat-tail risk metric: disclosures, derivatives, and the measurement of financial riskA proposed fat-tail risk metric: disclosures, derivatives, and the measurement of financial risk
heinonline.org [PDF]
… bubbles and trend following, sudden crashes and mean reversion, clustered volatility and fat tails in the … related to Keynes' view that 'expectations matter', to Simon's view that economic man is boundedly … eg as measured by relative profitability and how much this strategy is used …

Financial markets as nonlinear adaptive evolutionary systemsFinancial markets as nonlinear adaptive evolutionary systems
www.tandfonline.com [PDF]
… bubbles and trend following, sudden crashes and mean reversion, clustered volatility and fat tails in the … related to Keynes' view that 'expectations matter', to Simon's view that economic man is boundedly … eg as measured by relative profitability and how much this strategy is used …

Obesity discourse and fat politics: research, critique and interventionsObesity discourse and fat politics: research, critique and interventions
www.tandfonline.com [PDF]
… bubbles and trend following, sudden crashes and mean reversion, clustered volatility and fat tails in the … related to Keynes' view that 'expectations matter', to Simon's view that economic man is boundedly … eg as measured by relative profitability and how much this strategy is used …



Q&A About Fat Man Strategy


How much capital do you need for this strategy?

You need enough capital that you won't lose sleep over losing it all in one day.

What kind of investor should stay away from this strategy?

Institutional investors who watch for these types of things will not allow themselves to be taken advantage of by this type of trading activity.

Where can you find out more about the fat man strategy ?

You can find out more about the fatmanstrategy on Wikipedia .

How many times has someone used a "fatman" trading style successfully in history ?

There have been several instances where people have used this type of trading style successfully but they were all before institutional investors became involved in stock markets around the world .

What does it take to be successful with the fat man strategy?

The ability to keep your mouth shut and not get caught.

Why would a person use a fat man strategy?

To make money quickly.

Who can use the fat man strategy?

Anyone with enough capital to do so.

What is Fat Man Strategy?

Fat man strategies are highly self-destructive and extremely difficult to pull off, especially if institutional investors are watching.

How does this tactic work?

The acquirer acquires assets from other companies or businesses so that they become more difficult for hostile bidders to digest. This makes them unattractive targets because they are too big and have too much debt, making them less appealing than smaller targets with fewer assets and less debt. This way, the fat man defense forces hostile bidders into acquiring smaller targets instead of larger ones with more debt and assets, which may not be as profitable or desirable as the original target was before being acquired by a fat man defense tactic. Additionally, if a bidder acquires multiple targets using fat man tactics, their total amount of debt will increase dramatically over time due to increased acquisition costs and higher interest rates on new loans taken out by these companies in order to pay off old loans from previous acquisitions made using fat man tactics. If there are enough acquisitions made using fat man tactics within a short period of time (e.g., several months), then it could lead to financial distress for the bidder who may end up having difficulty servicing its high level of debt after acquiring multiple targets using kamikaze strategies such as fat man tactics."

Who developed this strategy?

Michael Cuggino developed it in his book "The Fat Man Defense".

What is the name of this strategy?

The Fat Man Strategy.

Why would an acquirer want to do this?

This tactic aims to make the target less attractive to hostile bidders. It also increases debt load and decreases available cash, which can be harmful for the acquirer as well.

Is there anything else I should know about the fatmanstrategy ?

Yes, there is one other thing you should know; when using a "fatman" strategy, always have an escape plan!

What is a bulked-up company?

A bulked-up company is a target company that has been acquired by another company.

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