Lady Macbeth Strategy

Lady Macbeth strategy is a corporate takeover scheme in which a third party poses as a white knight to gain trust, but then turns around and joins with the unfriendly party in a hostile takeover bid. Behind the scenes the hostile bidder and supposed white knight to the target company will collude to achieve their aim of acquiring a company that is trying to resist the attempt. 

Lady Macbeth, one of Shakespeare's most frightful and ambitious characters, devises a cunning plan for her husband, the Scottish general, to kill Duncan, the King of Scotland. The success of Lady Macbeth's scheme lies in her deceptive ability to appear noble and virtuous, and thereby secure Duncan's trust in the Macbeth's false loyalty.

The white knight defense is one of many takeover defenses that a company could deploy in a hostile bid situation. Adopting a poison pill (shareholder rights plan), staggering the election of the Board of Directors, establishing an employee stock ownership plan (ESOP) and creating a different class of voting shares are other common methods to deter or block unsolicited advances. If a company seeks out a white knight, it must treat this savior well, providing attractive incentives for his chivalry. For example, the white knight may be allowed to pay a smaller premium to take control of the company than otherwise would be required under competitive bid conditions.

There is no good modern-day example of Lady Macbeth strategy. Hostile takeover bids occur only once in a while and it is rarer still that a white knight would become part of the plot. Moreover, even if a targeted company sought out a white knight, it typically would have enough knowledge of this third party to be confident that it would work cooperatively with the besieged company instead of betraying it.