What is the ‘Pac-Man Defense’

The Pac-Man defense is a defensive method used by a targeted firm in a hostile takeover circumstance. In a Pac-Man defense, the target firm then attempts to acquire the company that has actually made the hostile takeover effort. In an effort to frighten off the would-be acquirers, the takeover target might use any technique to get the other business, including dipping into its war chest for cash to purchase a majority stake in the other business.

BREAKING DOWN ‘Pac-Man Defense’

A smaller or comparable business might avoid a hostile takeover by utilizing the Pac-Man defense.

Pac-Man Video Game Technique

In the Pac-Man video game, the gamer has several ghosts chasing and attempting to remove it. If the gamer consumes a power pellet, he might reverse and consume the ghosts.

War Chest

A company’s war chest is the buffer of cash kept aside for unsure unfavorable events, such as taking over a business. A war chest is usually purchased liquid possessions such as Treasury expenses and bank deposits that are offered on demand.

Disadvantages of the Pac-Man Defense

The Pac-Man defense is an expensive technique that might increase debts for the target company. Investors may suffer losses or lower dividends in future years.

Examples of the Pac-Man Defense

In 1982, Bendix Corporation tried to surpass Martin Marietta by purchasing a managing quantity of its stocks. Bendix Corporation ended up being the owner of the company on paper. Nevertheless, Martin Marietta’s management responded by selling its chemical, cement and aluminum divisions and loaning over $1 billion to counter the acquisition. The conflict resulted in Allied Corporation obtaining Bendix Corporation.

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