Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Pac-Man Defense

What it is:

A Pac-Man defense is a strategy for averting hostile takeovers.

How it works (Example):

Let's assume Company ABC wants to purchase Company XYZ. Company XYZ's board does not want to sell, but Company ABC threatens a hostile takeover. To ward off the takeover attempt, Company XYZ makes an offer to buy Company ABC.

In the popular 1980s video game, Pac-Man is able to eat a power pellet that gives him the power to eat the ghosts that are chasing him.

Martin Marietta Corporation introduced the Pac-Man defense in 1982 by bidding for every company that was trying to buy it.

Why it Matters:

The Pac-Man defense is a drastic step because it often requires targets to borrow or dip into cash to purchase potential acquirers.