Hostile Takeover Defense Strategies: Pac-Man Defense

Pac-Man Defense

The Pac-Man defense occurs when a target company attempts to acquire its potential acquirer when a takeover bid has already been received. Just as the acquirer is attempting to buy up a controlling number of shares in the target company, the target likewise begins buying up shares of the acquirer in an attempt to obtain a controlling interest in the acquirer. Such a strategy is only possible if the target company has enough financial resources to purchase the required number of shares in the acquirer. In an attempt to scare off the would-be acquirers, the takeover target may use any method to acquire the other company, including selling its own assets and non-core business units, borrowing cash, and using its war chest. The acquirer, seeing control of its own firm threatened, will often cease attempting to take over the target.

How does it work?

1. Company A is attempting a hostile takeover of Company B by purchasing shares of Company B, with the goal of obtaining a controlling interest.

2. Company B realizes this and uses its assets to purchase large numbers of shares of Company A.

3. Company A sees the potential risk of being taken over by Company B and decides to abandon its hostile takeover attempt.