The Pac-Man Defense

The Pac-Man Defense | What is the Pac-Man Defense?

The Pac-Man defense is a strategy in mergers and acquisitions that is used by a company facing a hostile takeover. The basic idea of the Pac-Man defense is that the company being acquired attempts to purchase the would-be buyer. Understanding the Pac-Man defense is important when considering executing a buyout.

Most people who grew up with video games remember the classic Pac-Man game, in which the player controls Pac-Man trying to consume various rewards while evading the ghosts in pursuit. Pac-Man is utterly defenseless and must run away from the ghosts until he consumes an "energizer" which allows Pac-Man to turn around and chase his pursuers for a period of time. (I promise, this does relate to private equity.)

Using the Pac-Man Defense
The Pac-Man defense follows the video game's concept because the once vulnerable company (i.e. Pac-Man) stops trying to avoid his enemy (i.e. acquirer) and strikes back with a hostile takeover of his own. This tactic has been employed by companies that do not wish to be purchased and so try to scare off buyers. The takeover target uses whatever resources available (even taking from its war chest) to defeat the acquisition, most often by purchasing a large amount of shares in the other company.

An Example of the Pac-Man Defense in an Acquisition
Although the Pac-Man defense has been employed on several occasions, the most cited example is the Bendix Corporation's attempted hostile takeover of the Martin Marietta Corporation. Bendix purchased a controlling stake in Martin Marietta, and essentially owned the company. However, in the brief period between Bendix owning and controlling the company, Martin Marietta's management sold off all non-essential assets to finance its own hostile takeover against Bendix. The Pac-Man defense was supported by United Technologies and Bendix was placed in the difficult position of fending off the counter-takeover. When the dust settled, Bendix was acquired, but not by Martin Marietta; instead, by the Allied Corporation.

Tags: The Pac-Man Defense, What is The Pac-Man Defense, How to use The Pac-Man Defense, Mergers and Acquisitions strategies, Mergers and Acquisitions, Bendix, Martin Marietta, Pac-Man Private Equity

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