Definition
The PAC-MAN Defense is a strategy used by a targeted company to prevent a hostile takeover. In this approach, the target company turns the tables by attempting to acquire the firm that initially planned the takeover. Named after the popular video game, the PAC-MAN Defense essentially sees the victim swallowing the attacker.
Key Takeaways
- The Pac-Man Defense is a strategy used by companies to prevent hostile takeovers. This strategy is named after the popular video game, where the player aims to eat the ghosts who are trying to eat him.
- The primary idea behind the Pac-Man Defense is that the ‘target company’, instead of getting acquired, turns the tables and attempts to acquire the ‘acquiring company’. This essentially makes the targeted company a less appealing and more risky prospect to the predator company.
- This type of defensive strategy can be extremely expensive due to the large amounts of capital required to buy majority stake in the acquiring company and can lead to large amounts of debt. Therefore, it is often the last resort used by companies to prevent a hostile takeover.
Importance
The PAC-MAN Defense is a vital strategy in the world of business mergers and acquisitions.
Named after the popular video game character, the PAC-MAN Defense involves a company that is targeted for a hostile takeover turning the tables to acquire its would-be buyer instead.
This tactic is important because it is one of the assertive measures that a threatened company can use to defend itself.
It serves as a deterrent to potential acquirers by imposing financial risks and challenges, thus preserving the autonomy and strategic direction of the company that was originally targeted.
The PAC-MAN Defense can impact shareholder value, corporate control, and industry dynamics, making it an essential concept in financial strategy.
Explanation
The PAC-MAN Defense is a strategic maneuver utilized by firms to deter a hostile takeover attempt. The principal objective of implementing such a technique is to deflect the risk of an unwanted acquisition by turning the tables against the aggressor.
What it means is that the company which is under siege from the hostile takeover attempt, now starts to acquire the company that initiated the takeover bid. This strategy can effectively discourage the bidder from pursuing the takeover, as it instigates the risk of them being taken over instead.
The PAC-MAN Defense requires substantial financial resources because the target company must purchase substantial stock in the initiator company. Despite being high risk, it is considered a last-ditch effort to fend off a hostile takeover when other options have been exhausted or aren’t viable.
Above all, it sends a definitive message about the lengths the besieged company’s management is willing to go to keep their independence. This technique could also be viewed as an aggressive attempt to neutralize the adversary, which in itself could discourage the instigating company from continuing its acquisition plans.
Examples of PAC MAN Defense
The Pac-Man Defense is an anti-takeover strategy in which a company that is threatened with a hostile takeover fights back by attempting to acquire the would-be buyer. It is referred to as a “Pac-Man Defense” because of the video game in which the character, Pac-Man, hunts down the enemies that were originally hunting him.
Martin Marietta Materials vs. Vulcan Materials: In 2011, Vulcan Materials announced that they were going to attempt to take over Martin Marietta Materials. Martin Marietta responded with a Pac-Man Defense, and tried to take over Vulcan instead, though the plan wasn’t successful.
Bendix vs. Martin Marietta: In 1982, automotive major Bendix Corporation launched a hostile bid to acquire aerospace and defense giant Martin Marietta. In response, Martin Marietta sold off part of its business to another entity to raise capital and subsequently made a counterbid for Bendix, effectively initiating the classic Pac-Man Defense.
Totalfina vs. Elf Aquitaine: In 1999, French oil company Elf Aquitaine attempted to take over its rival Totalfina. In response, Totalfina deployed a Pac-Man Defense and launched a counterbid for Elf Aquitaine. The strategy worked and Totalfina successfully acquired Elf Aquitaine.
FAQ Section: PAC MAN Defense
What is the PAC MAN Defense?
The PAC MAN Defense is a strategy used by companies to prevent hostile takeovers. Named after the popular arcade game, this defensive strategy involves the target company turning around to acquire the firm that initially attempted the takeover.
How does the PAC MAN Defense work?
In a PAC MAN Defense, a company that is under the threat of a hostile takeover fights back by attempting to acquire the would-be acquirer. This is often financed through the sale of assets or by taking on significant debt. The end goal is to either deter the buying company or potentially gain control over it.
What is the origin of the PAC MAN Defense?
The term “PAC MAN Defense” was first used in the 1980s and is named after the popular arcade game “PAC MAN”. In the game, the player attempts to consume ghosts which chase him, a parallel to the takeover-target company turning the tables on the would-be acquirer.
What are the potential drawbacks of the PAC MAN Defense?
A PAC MAN Defense can be a risky strategy. The target company might acquire a significant amount of debt to finance the acquisition of the would-be acquirer. This can lead to financial troubles for the company, especially if revenues are not sufficient to cover the new debt repayments. In addition, the sale of valuable assets to fund the acquisition can weaken the company in the long run.
Related Entrepreneurship Terms
- Takeover Defense
- Hostile Takeover
- Mergers and Acquisitions
- Shareholder Rights Plan
- Corporate Governance
Sources for More Information
- Investopedia: This is an established, comprehensive source for financial information, including details about PAC MAN Defense.
- Corporate Finance Institute: This professional site contains expert explanations and resources on various finance concepts including PAC MAN Defense.
- The Economist: The renowned international publication often discusses financial strategies such as the PAC MAN Defense in its finance and economics section.
- Financial Times: It is a globally recognized news outlet that often covers complex financial and economic topics, including PAC MAN Defense.
