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Pac-Man Defense: What It Is, How It Works, and Examples

Last updated 04/11/2024 by

Bamigbola Paul

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Pac-Man is a high-risk hostile takeover defense tactic where the target company tries to acquire control of the company bidding for it. Named after the popular video game, this tactic involves purchasing large amounts of stock to deter the prospective buyer.

Pac-Man: a strategic hostile takeover defense tactic

In the realm of corporate acquisitions and hostile takeovers, the Pac-Man defense stands out as a bold and aggressive strategy employed by target companies to fend off unwanted advances. Originating from the iconic video game, Pac-Man is not just a game of chase but also a metaphor for a company turning the tables on its aggressor. Let’s delve deeper into this high-stakes maneuver and understand its nuances.

Understanding the Pac-Man defense

When a company finds itself in the crosshairs of a hostile takeover attempt, it can employ various defensive strategies. The Pac-Man defense is a drastic measure where the target company retaliates by attempting to acquire the very company that is trying to take it over. This defensive tactic is named after the classic arcade game where the player, as Pac-Man, turns the tables on the ghosts by consuming power pellets and chasing them instead.
Implementing a Pac-Man defense involves the target company buying back its own shares and purchasing shares of the acquiring company. The goal is to create a financial burden for the aggressor, making the takeover less attractive or even financially unviable.

Real-world examples of Pac-Man defense

Several notable examples highlight the use and effectiveness of the Pac-Man defense in corporate battles:
  • In 1982, Bendix Corporation attempted a hostile takeover of Martin Marietta. In response, Martin Marietta executed a Pac-Man defense by selling off divisions and borrowing heavily to acquire Bendix. The move ultimately led to both companies suffering financial setbacks.
  • In 1988, American Brands successfully employed a Pac-Man defense against E-II Holdings Inc., buying the company that was attempting to acquire it.
  • In 2005, Porsche attempted to acquire Volkswagen. Facing financial difficulties during the 2008 financial crisis, Porsche became a target itself. Volkswagen executed a Pac-Man defense, buying shares of Porsche and eventually acquiring the company.
Here is a list of the benefits and the drawbacks to consider.
  • Can deter hostile takeovers
  • Allows the target company to take control of the situation
  • May result in the aggressor backing off
  • Can be costly to implement
  • May lead to increased debt for the target company
  • Can distract management from core operations

Implementing a Pac-Man defense: strategies and considerations

When a company decides to employ a Pac-Man defense, it must carefully strategize and consider various factors to maximize its effectiveness. Here are some common strategies and considerations:
  • Strategic stock purchases: The target company may strategically purchase its own shares to increase ownership and create a financial barrier for the aggressor.
  • Acquiring shares of the aggressor: In addition to buying back its own shares, the target company may also acquire shares of the acquiring company, further complicating the takeover attempt.
  • Financial analysis: Before initiating a Pac-Man defense, the target company must conduct a thorough financial analysis to assess its ability to withstand the costs and potential risks involved.
  • Legal considerations: Pac-Man defenses may involve complex legal issues, including regulatory compliance and shareholder rights. Engaging legal counsel is essential to navigate these challenges.

Success stories and failures: lessons learned from Pac-Man defenses

Examining past instances of Pac-Man defenses provides valuable insights into the factors that contribute to success or failure. Here are notable success stories and failures:
  • Success story: Time Warner vs. Paramount – In 1989, Time Warner successfully employed a Pac-Man defense against Paramount Communications, ultimately leading to a merger between the two companies.
  • Failure: DuPont vs. Conoco – In 1981, DuPont attempted a Pac-Man defense against Conoco, but the strategy failed to deter the aggressor, resulting in DuPont selling its shares to Conoco.
  • Success story: ITT vs. Hilton – In 1987, ITT Corporation employed a Pac-Man defense against Hilton Hotels, successfully fending off the takeover attempt and preserving its independence.

Regulatory and ethical considerations in Pac-Man defenses

While Pac-Man defenses can be effective in thwarting hostile takeovers, they also raise important regulatory and ethical considerations. Here are some key factors to consider:
  • Antitrust concerns: Pac-Man defenses may attract scrutiny from antitrust regulators, particularly if they involve significant market consolidation or anti-competitive practices.
  • Shareholder rights: Target companies must ensure that their actions align with the interests of shareholders and respect their rights, including the right to vote on major corporate decisions.
  • Transparency and disclosure: Target companies must maintain transparency and provide accurate information to shareholders and regulatory authorities regarding their Pac-Man defense strategies and financial implications.


The Pac-Man defense remains a daring and aggressive tactic in the world of hostile takeovers. While it can be effective in deterring aggressors, its high cost and potential impact on the target company’s finances and operations make it a strategy of last resort. Companies considering this defense should weigh the risks and benefits carefully before proceeding.

Frequently asked questions

What are the risks associated with Pac-Man defenses?

Pac-Man defenses can be financially burdensome for the target company, potentially leading to increased debt and asset sell-offs. Additionally, implementing such a defense may distract management from core business operations, affecting overall performance.

Can Pac-Man defenses violate antitrust regulations?

While Pac-Man defenses themselves may not violate antitrust regulations, they can attract scrutiny from regulators, especially if they involve significant market consolidation or anti-competitive behavior. Companies must ensure compliance with relevant laws and regulations when implementing defensive strategies.

How do shareholders typically react to Pac-Man defenses?

Shareholder reactions to Pac-Man defenses can vary. While some may support aggressive measures to preserve the company’s independence, others may express concerns about the financial implications and long-term viability of such tactics. Open communication and transparency with shareholders are essential to address concerns effectively.

Are there alternative strategies to Pac-Man defenses?

Yes, there are alternative strategies to Pac-Man defenses that target companies may consider. These include poison pill defenses, white knight acquisitions, staggered board structures, and seeking regulatory intervention. Each strategy has its own advantages and limitations, depending on the specific circumstances of the takeover attempt.

What factors should companies consider before implementing a Pac-Man defense?

Before implementing a Pac-Man defense, companies should carefully evaluate their financial position, legal obligations, shareholder sentiments, and potential long-term consequences. Conducting a thorough risk assessment and consulting with legal and financial advisors can help companies make informed decisions about defensive tactics.

Key takeaways

  • Pac-Man defense is a hostile takeover defense tactic where the target company attempts to acquire control of the company that bids for it.
  • It is a retaliatory measure designed to deter the prospective buyer and either ward them off or weaken their position.
  • Pac-Man defenses are usually considered as a last resort due to the high financial costs and potential risks involved.

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