Pac-Man Defense
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The Pac-Man defense is a defensive
business strategy In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of ...
used to stave off a
hostile takeover In business, a takeover is the purchase of one company (law), company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are publicly listed, in contrast t ...
, in which a company that is threatened with a hostile takeover "turns the tables" by attempting to acquire its would-be buyer. The name refers to ''
Pac-Man ''Pac-Man,'' originally called in Japan, is a 1980 maze video game developed and published by Namco for arcades. In North America, the game was released by Midway Manufacturing as part of its licensing agreement with Namco America. The pla ...
'', a video game in which the protagonist is at first chased around a maze of dots by four ghosts. However, after eating a " Power Pellet" dot, he is able to chase and devour the
ghosts In folklore, a ghost is the soul or Spirit (supernatural entity), spirit of a dead Human, person or non-human animal that is believed by some people to be able to appear to the living. In ghostlore, descriptions of ghosts vary widely, from a ...
. The term (though not the technique) was coined by buyout guru
Bruce Wasserstein Bruce Jay Wasserstein (December 25, 1947 – October 14, 2009) was an American investment banker, businessman, and writer. He was prominent in the mergers and acquisitions industry, credited with working on 1,000 transactions with a total value ...
.


Examples


United States

When T. Boone Pickens's Mesa Petroleum planned a
tender offer In corporate finance, a tender offer is a type of public takeover bid. The tender offer is a public, open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded corp ...
for Cities Service in 1981, Freeport-McMoran and Louisiana Land & Exploration agreed to help him. An investment banker working for Cities Service warned Freeport and Louisiana Land in August 1981 that if they did not end their partnership with Pickens, Cities Service would take them over; the threat succeeded. When Pickens found new partners including Southland Corporation, Cities Service announced in May 1982 its own tender offer for Mesa, and also threatened to take over Southland. A major example in U.S. corporate history is the attempted hostile takeover of
Martin Marietta The Martin Marietta Corporation was an American company founded in 1961 through the merger of Glenn L. Martin Company and American-Marietta Corporation. In 1995, it merged with Lockheed Corporation to form Lockheed Martin. History Martin Marie ...
by
Bendix Corporation Bendix Corporation is an American manufacturing and engineering company founded in 1924 and subsidiary of Knorr-Bremse since 2002. During various times in its existence, Bendix made automotive brake shoes and systems, vacuum tubes, aircraft ...
in 1982. In response, Martin Marietta started buying Bendix stock with the aim of assuming control over the company. Bendix persuaded Allied Corporation to act as a
white knight A white knight is a mythological figure and literary stock character. They are portrayed alongside a black knight as diametric opposites. A white knight usually represents a heroic warrior fighting against evil, with the role in medieval literatu ...
, and the company was sold to Allied the same year. In 1984,
U.S. Securities and Exchange Commission The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...
commissioners said that the Pac-Man defense was cause for “serious concern,” but balked at endorsing any federal prohibition against the tactic. The commissioners acknowledged a Pac-Man defense can benefit shareholders under certain circumstances, but emphasized that management, in resorting to this tactic, must bear the burden of proving it is not acting solely out of its desire to stay in office. One concern is that the money spent to gain control of the intruding company, which includes payment for the services of lawyers and other professionals needed to mount that defense, represents substantial funds that could have otherwise been used to improve the company’s business or increase its profits. The next Pac-Man defense occurred in 1988, when
American Brands Fortune Brands was a holding company founded in 1969 as American Brands, renamed in 1997 and split apart in 2011. The corporate headquarters was in Deerfield, Illinois, in the United States. The company had diversified product lines. It announce ...
, fighting a hostile takeover attempt by E-II Holdings, announced a cash tender offer for E-II. In 2007, British mining giant Rio Tinto, fighting off an unsolicited $131.57 billion takeover bid from Australian rival BHP Billiton, considered turning the tables on its rival and launching a counterbid for BHP. In 2009,
Cadbury Cadbury, formerly Cadbury's and Cadbury Schweppes, is a British multinational confectionery company owned by Mondelez International (spun off from Kraft Foods) since 2010. It is the second-largest confectionery brand in the world, after Mars. ...
considered trying a Pac-Man defense if no bid emerged to challenge
Kraft Foods Kraft Foods Group, Inc. was an American food manufacturing and processing conglomerate (company), conglomerate, split from Kraft Foods Inc. on October 1, 2012, and was headquartered in Chicago, Illinois. It became part of Kraft Heinz on July ...
' hostile offer.


International

Internationally, perhaps the best-known case was that of
Porsche Dr. Ing. h.c. F. Porsche AG, usually shortened to Porsche (; see below), is a German automobile manufacturer specializing in luxury, high-performance sports cars, SUVs and sedans, headquartered in Stuttgart, Baden-Württemberg, Germany. Th ...
and the
Volkswagen Group Volkswagen AG (), known internationally as the Volkswagen Group, is a German public multinational conglomerate manufacturer of passenger and commercial vehicles, motorcycles, engines and turbomachinery. Headquartered in Wolfsburg, Lower Saxon ...
, in which Porsche, under the leadership of Wendelin Wiedeking, led a hostile takeover of the much-larger Volkswagen Group by slowly acquiring a large stake in Volkswagen, eventually to the point of owning over 75% of the company in 2008 and potentially triggering Germany's " Volkswagen law". By October 2008, Porsche, which was enjoying record profitability, suddenly ran out of money during the
2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...
and banks were reluctant to lend any more money to Porsche; in fact, they wanted their loans paid back immediately. Ferdinand Piëch, the chairman of Volkswagen and a board member of Porsche, loaned Porsche enough money to cover their debts, and Volkswagen, which Porsche tried to acquire, became the white knight and Volkswagen effectively took over Porsche. The unique situation had much to do with the historical closeness of the Volkswagen Group to Porsche, and the battle between the Porsche and Piëch families (both descended from Ferdinand Porsche) for control of Porsche, although both families supported the deal. However, later that year when the two companies announced an official merger, Volkswagen was announced as the surviving partner.


Bibliography

* ''Big Deal: The Battle for the Control of America's Leading Corporations'', Bruce Wasserstein, (1988, ) * ''Pac-Man Defense'' http://www.investopedia.com/terms/p/pac-man-defense.asp


See also

*
Reverse takeover A reverse takeover (RTO), reverse merger, or reverse IPO is the acquisition of a public company by a private company so that the private company can bypass the lengthy and complex process of going public. Sometimes, conversely, the public compa ...


References


External links

*
Preventive anti-takeover defenses: evidence from the French market for corporate control
' {{DEFAULTSORT:Pac-Man Defense Business terms Mergers and acquisitions Pac-Man Bendix Corporation Takeover defense