Pac-Man Defense

What Is the Pac-Man Defense?

The Pac-Man defense is a defensive strategy utilized by a targeted firm in a hostile takeover situation. In a Pac-Man defense, the target firm then attempts to obtain the company that has made a hostile takeover endeavor. While trying to scare off the eventual acquirers, the takeover target might utilize a method to get the other company, including dipping into its war chest for cash to buy a majority stake in the other company.

Understanding the Pac-Man Defense

In the genuine Pac-Man video game, the player has several phantoms chasing and trying to dispose of it. In the event that the player eats a power pellet, they might pivot and eat the phantoms.

Companies might involve a comparative approach for the purpose of staying away from a hostile takeover by reversing the situation on the acquirer and mounting a bid to assume control over the raider. During the securing phase, the takeover company might start an enormous scope purchase of the target company's stocks to gain control of the company. As a counter-strategy, the target company might start buying back its shares and purchasing shares of the obtaining company.

It helps substantially in the event that the targeted company has a war chest so it is able to mount a Pac-Man defense. A company's war chest is the buffer of cash saved aside for uncertain adverse occasions, like assuming control over a company. A war chest is normally invested in liquid assets, for example, Treasury bills and bank deposits that are accessible on demand.

A more modest or equivalent company might stay away from a hostile takeover by utilizing the Pac-Man defense.

Special Considerations

For certain companies, the Pac-Man defense is one of a handful of the options accessible when confronted with a hostile takeover endeavor. Without getting aggressive and fighting back, the company might get no opportunity of making due. Notwithstanding, on the downside, the Pac-Man defense can be a costly strategy that might increase obligations for the target company. Shareholders might endure losses or lower dividends in later years.

Instances of the Pac-Man Defense

In 1982, Bendix Corp. endeavored to secure Martin Marietta by purchasing a controlling amount of its stocks. Bendix turned into the owner of the company on paper. Notwithstanding, Martin Marietta's management fought back by selling off its compound, concrete and aluminum divisions, and borrowing more than $1 billion to counter the acquisition. The conflict brought about Allied Corp. gaining Bendix.

In February 1988, following a drawn out takeover fight that started when E-II Holdings Inc. made an offer for American Brands Inc., American Brands bought E-II for $2.7 billion. American Brands financed the merger through existing lines of credit and a private placement of commercial paper.

At long last, in October 2013, Jos. A. Bank sent off a bid to assume control over contender Men's Wearhouse. Men's Wearhouse dismissed the bid and countered with its own offers. During talks, Jos. A. Bank bought Eddie Bauer to gain more control in the marketplace. Men's Wearhouse ended up buying Jos. A. Bank for $1.8 billion.

Features

• The targeted company might decide to sell off certain key assets, in order to wrest them free of the potential acquisition company.
• The targeted company may likewise decide to buy back its very own portion shares from the hostile company, or try to buy a portion of that company's shares.
• The company at risk for being taken over could fund these activities by getting outside financing, or by utilizing its own war chest of accessible funds.
• With the Pac-Man defense, a company that has been targeted in a hostile takeover scenario fights back by seeking to gain financial control of the situation.