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Pac-Man Defense

Definition

The Pac-Man defense is a defensive business strategy used to stave off a hostile takeover, in which a company that is threatened with a hostile takeover "turns the tables" by attempting to acquire its would-be buyer. The name refers to Pac-Man, a video game in which the protagonist is at first chased around a maze of dots by 4 ghosts. However, after eating a "Power Pellet" dot, he is able to chase and devour the ghosts. The term was coined by buyout guru Bruce Wasserstein.

What is the 'Pac-Man Defense'

The Pac-Man defense is a defensive tactic used by a targeted firm in a hostile takeover situation. In a Pac-Man defense, the target firm then tries to acquire the company that has made the hostile takeover attempt. In an attempt to scare off the would-be acquirers, the takeover target may use any method to acquire the other company, including dipping into its war chest for cash to buy a majority stake in the other company.

Explaining 'Pac-Man Defense'

A smaller or equivalent company may avoid a hostile takeover by using the Pac-Man defense.

Pac-Man Game Strategy

In the Pac-Man game, the player has several ghosts chasing and trying to eliminate it. If the player eats a power pellet, he may turn around and eat the ghosts.

War Chest

A company’s war chest is the buffer of cash kept aside for uncertain adverse events, such as taking over a company. A war chest is typically invested in liquid assets such as Treasury bills and bank deposits that are available on demand.

Disadvantages of the Pac-Man Defense

The Pac-Man defense is an expensive strategy that may increase debts for the target company. Shareholders may suffer losses or lower dividends in future years.

Examples of the Pac-Man Defense

In 1982, Bendix Corporation attempted to overtake Martin Marietta by purchasing a controlling amount of its stocks. Bendix Corporation became the owner of the company on paper. However, Martin Marietta’s management reacted by selling off its chemical, cement and aluminum divisions and borrowing over $1 billion to counter the acquisition. The conflict resulted in Allied Corporation acquiring Bendix Corporation.


Further Reading


Dots, fruit, speed and pills: the Happy Consciousness of
www.tandfonline.com [PDF]
… emption than Pac-Man's power pills which the player can use as 'a legitimate defensive tool – good … 3. This is especially poignant in the current economic climate as US car firms look towards … In this case the mergers can be seen as a variant on the 'Pac-Man defence', whereby a …

Defensive Strategies in TakeoversDefensive Strategies in Takeovers
onlinelibrary.wiley.com [PDF]
… emption than Pac-Man's power pills which the player can use as 'a legitimate defensive tool – good … 3. This is especially poignant in the current economic climate as US car firms look towards … In this case the mergers can be seen as a variant on the 'Pac-Man defence', whereby a …

… in the European Union with and without the proposed 13th Company Law Directive; Theoretical application of simple finance theory and transaction cost economics… in the European Union with and without the proposed 13th Company Law Directive; Theoretical application of simple finance theory and transaction cost economics
lup.lub.lu.se [PDF]
… emption than Pac-Man's power pills which the player can use as 'a legitimate defensive tool – good … 3. This is especially poignant in the current economic climate as US car firms look towards … In this case the mergers can be seen as a variant on the 'Pac-Man defence', whereby a …

The Pac-Man strategy: roll-up patterns and processes in three industries.The Pac-Man strategy: roll-up patterns and processes in three industries.
dspace.mit.edu [PDF]
… emption than Pac-Man's power pills which the player can use as 'a legitimate defensive tool – good … 3. This is especially poignant in the current economic climate as US car firms look towards … In this case the mergers can be seen as a variant on the 'Pac-Man defence', whereby a …

Vulnerability and Resistance: An Evaluation of Hostile Takeover Defenses Proposed By: Carissa Wilson, International Business & Business EconomicsVulnerability and Resistance: An Evaluation of Hostile Takeover Defenses Proposed By: Carissa Wilson, International Business & Business Economics
scholarcommons.sc.edu [PDF]
… emption than Pac-Man's power pills which the player can use as 'a legitimate defensive tool – good … 3. This is especially poignant in the current economic climate as US car firms look towards … In this case the mergers can be seen as a variant on the 'Pac-Man defence', whereby a …

Cash distributions to shareholdersCash distributions to shareholders
www.aeaweb.org [PDF]
… emption than Pac-Man's power pills which the player can use as 'a legitimate defensive tool – good … 3. This is especially poignant in the current economic climate as US car firms look towards … In this case the mergers can be seen as a variant on the 'Pac-Man defence', whereby a …



Q&A About Pac-Man Defense


Where do companies keep their war chests?

In liquid assets such as Treasury bills and bank deposits that are available on demand.

How does this method scare off would be acquirers?

By using any means necessary to buy out the other company, including dipping into its war chest for cash.

Why might shareholders suffer losses or lower dividends in future years with this strategy?

This strategy may increase debts for the target company, which could lead to losses or lower dividends in future years. Shareholders may suffer losses or lower dividends in future years with this strategy.

What is the Pac-Man defense?

The Pac-Man defense is a defensive tactic used by a targeted firm in a hostile takeover situation.

What does the Pac-Man defense involve?

It involves buying out the company that has made the hostile takeover attempt.

Who was Bendix Corporation attempting to overtake Martin Marietta by purchasing controlling amounts of its stocks?

Bendix Corporation attempted to overtake Martin Marietta by purchasing controlling amounts of its stocks.

Who ended up acquiring Bendix Corporation instead of Martin Marietta ?

Allied Corporation acquired Bendix Corporation instead of Martin Marietta .

What did Martin Mariettas management do when they realized what was happening?

They sold off their chemical, cement and aluminum divisions and borrowed over $1 billion to counter the acquisition.