Pac-Man

DEFINITION of 'Pac-Man'

A high-risk hostile takeover defense in which the target firm tries to take over the company that has made the hostile bid by purchasing large amounts of the would-be acquirer's stock. The Pac-Man defense is supposed to scare off the would-be acquirer, which doesn't want to be taken over itself. The target may sell off its own assets or borrow heavily in order to acquire enough of the acquirer's stock to prevent the takeover.

BREAKING DOWN 'Pac-Man'

The Pac-Man defense does not always work, but it was first successfully used in 1982 by Martin Marietta to prevent a takeover by Bendix Corp. In 1988, American Brands used it successfully against E-II, and TotalFina used it in 1999 to prevent a takeover by Elf Aquitaine. Some analysts speculated that Cadbury would try to use the Pac-Man defense against Kraft in 2009.


The Pac-Man defense may be used alone or in conjunction with other takeover defenses, such as the white knight.

RELATED TERMS
  1. Hostile Takeover

    The acquisition of one company (called the target company) by ...
  2. "Just Say No" Defense

    A strategy used by corporations to discourage hostile takeovers ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover ...
  4. Takeover Bid

    A type of corporate action in which an acquiring company makes ...
  5. Poison Put

    A takeover defense strategy in which the target company issues ...
  6. Hostile Bid

    A specific type of takeover bid that is presented directly to ...
Related Articles
  1. 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 ...
  2. Trading

    Pinpoint Takeovers First

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

    Reverse Takeover

    Learn more about this type of takeover and how companies use it to avoid IPOs.
  4. Markets

    Trademarks Of A Takeover Target

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

    How To Profit From Mergers And Acquisitions Through Arbitrage

    Making a windfall from a stock that attracts a takeover bid is an alluring proposition. But be warned – benefiting from m&a is easier said than done.
  6. Investing

    Poison Pill

    A poison pill is a corporate maneuver put in place to try and prevent a hostile takeover. The target corporation uses this strategy to make its stock less attractive to the acquirer. This is ...
  7. Managing Wealth

    Investopedia's Oddest Business and Investing Terms

    The oddest business and investing terms found on Investopedia.
  8. Investing

    Mergers and Acquisitions: Doing The Deal

    Start with an Offer When the CEO and top managers of a company decide that they want to do a merger or acquisition, they start with a tender offer. The process typically begins with the acquiring ...
  9. Markets

    A Review Of Defense Stocks

    2010 could be a good year for defense stocks. Find out why.
  10. Retirement

    When The Offense Changes, The Defense Needs To Adapt

    Sports are like investing: you don’t blindly use a strategy without considering your opponent’s next move, his strengths, and his weaknesses. To win, you have to adapt.
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. How do companies use the Pac-Man defense?

    To employ the Pac-Man defense, a company will scare off another company that had tried to acquire it by purchasing large ... 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. How can a company resist a hostile takeover?

    Learn about some of the defense strategies a public company's board of directors might employ to prevent a hostile bidder ... 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. What's the difference between a merger and a hostile takeover?

    Understand the difference between a merger and a hostile takeover, including the different ways one company can acquire another, ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center