A:

To employ the Pac-Man defense, a company will scare off another company that had tried to acquire it by purchasing large amounts of the acquiring company's stock. By doing so, the defending company signals to the acquiring company that it is resistant to a takeover and will use the majority, if not all, of its assets to prevent the acquisition. The resisting company may even sell off non-vital assets to procure enough assets to buy out the acquirer. Often, the acquiring company sees the potential risk of being taken over as motivation to halt pursuit.

The attempted acquisition of Martin Marietta (NYSE:MLM) by Bendix Corporation in 1982 is a popular example of the Pac-Man defense. Martin Marietta's management responded to Bendix Corporation's takeover attempt by selling non-core businesses in order to attempt a takeover of its own - of Bendix Corporation. In the end, Martin Marietta's use of the Pac-Man defense proved successful, as the company survived the acquisition attempt and Bendix Corporation was bought by Allied Corporation.

For more on this topic, read Corporate Takeover Defense: A Shareholder's Perspective.

This question was answered by Bob Schneider.

RELATED FAQS
  1. What is the Pac-Man defense?

    The Pac-Man defense is a strategy in which a company that is facing a hostile takeover from another company essentially turns ... Read Answer >>
  2. What happens to the stock prices of two companies involved in an acquisition?

    When a firm acquires another entity, there usually is a predictable short-term effect on the stock price of both companies. ... Read Answer >>
  3. Under what circumstances might a company decide to do a hostile takeover?

    Learn about why companies use a hostile takeover to gain control of another company, and understand the different methods ... Read Answer >>
  4. What is the difference between an acquisition and a takeover?

    There is no tangible difference between an acquisition and a takeover; both words can be used interchangeably - the only ... Read Answer >>
  5. What is the difference between a hostile takeover and a friendly takeover?

    Learn about the difference between a hostile takeover and a friendly takeover, and understand how proxy fights and tender ... Read Answer >>
  6. How can a company buy back shares to fend off a hostile takeover?

    Learn about why a business might use a stock buyback to thwart a hostile takeover attempt by reducing its total assets and ... Read Answer >>
Related Articles
  1. Investing

    Corporate Takeover Defense: A Shareholder's Perspective

    Find out the strategies corporations use to protect themselves from unwanted acquisitions.
  2. Investing

    Warding Off Hostile Takeovers

    The purpose of this article is to provide a general overview of hostile corporate takeovers, while highlighting a general course of action against such activity. This article provides basic information ...
  3. Small Business

    What is a Takeover?

    A takeover happens when one company makes a bid to acquire a target company.
  4. Investing

    Pinpoint Takeovers First

    Use these seven steps to discover a takeover before the rest of the market catches on.
  5. Investing

    Trademarks Of A Takeover Target

    These tips can lead you to little companies with big prospects.
  6. Investing

    Mergers And Acquisitions: Understanding Takeovers

    In the dramatic world of M&As, battleground terms meld with bizarre metaphors to form the language of the game.
  7. Investing

    What Happens To The Stock Prices Of Two Companies Involved In An Acquisition?

    When one firm buys another, the effect is predictable. The acquiring company’s stock falls in value, while the target company’s climbs.
  8. Investing

    What Investors Can Learn From M&A Payment Methods

    How a company pays in a merger or acquisition can reveal a lot about the buyer and seller. We tell you what to look for.
  9. Small Business

    What's an Acquisition?

    In corporate terms, an acquisition is the purchase of a company or the division of a company. Some acquisitions are paid in cash, while others are paid with a combination of cash and the acquiring ...
  10. Investing

    Reverse Takeover

    Learn more about this type of takeover and how companies use it to avoid IPOs.
RELATED TERMS
  1. Pac-Man

    A high-risk hostile takeover defense in which the target firm ...
  2. Pac-Man Defense

    A defensive tactic used by a targeted firm in a hostile takeover ...
  3. Defensive Acquisition

    The act of firms acquiring other firms and assets as a defense ...
  4. Hostile Takeover

    The acquisition of one company (called the target company) by ...
  5. Busted Takeover

    A highly leveraged corporate buyout that is contingent upon the ...
  6. Acquisition

    A corporate action in which a company buys most, if not all, ...
Hot Definitions
  1. IRS Publication 970

    A document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  3. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  4. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  5. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  6. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
Trading Center