posted on 06-06-2019

Pac-Man Defense

Updated October 1, 2019

What is a Pac-Man Defense?

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

How Does a Pac-Man Defense Work?

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 Does a Pac-Man Defense Matter?

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