What is a Pac Man Defense?
A Pac Man Defense is a strategy for averting hostile takeovers. In instances where a company is the subject of a hostile takeover, it can employ a Pac Man Defense by making an offer to purchase the firm that is attempting to acquire it.
Pac Man Defense Definition & 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 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.