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.




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