Machete Mike confronts the Sole Survivor after they have retrieved the power tools requested by The Mariner, during part one of the Hull Breach quest series. He shows up as soon as the Survivor leaves the Eagle's Cove tannery and offers 2000 caps for the tools (2750 if a Speech check asking for a reward is passed). Accepting his offer will fail the entire Hull Breach quest series and thus prevent the Survivor from receiving a unique harpoon gun as well as the Mariner's support during one of the final Far Harbor quests.
Should Machete Mike's offer be rejected, he will simply tell the Survivor to think it over, claiming they know where to find him in case they change their mind. Neither choice results in violence. If Mike is killed during this time, then the player will not receive the Mariner's support as she will suspect them of being responsible for Mike's death.
Mike carries a minimum 3180 caps, but he cannot be pickpocketed, even with associated skills leveled, for the percent of success remains at 0%. If you attempt to pickpocket and fail, resulting in Mike turning hostile, one can kill him to claim the caps. As this is considered self-defense, the Mariner still offers her rewards for the tools and the quest line progresses. You can also pacify him after failing pickpocketing and take his caps after he surrenders.
Mike cannot be killed by feral ghouls or a companion and will just enter the "downed" state. Killing Mike in this way may still result in the player being barred from starting the second and third portions of this quest. Mike can however be killed by the Big Leagues perk when killing a nearby ghoul. (No quest change results from accidentally killing the character this way).