Pac-Man defense
Encyclopedia
The Pac-Man defense is a defensive option to stave off a hostile takeover
in which a company that is threatened with a hostile takeover "turns the tables" by attempting to acquire its would-be buyer.
A major example in U.S. corporate history is the attempted hostile takeover of Martin Marietta
by Bendix Corporation
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
," and the company was sold to Allied the same year. The incident was labeled a "Pac-Man defense" in retrospect.
In 1984, Securities Exchange Commission 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 isn’t 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 Inc., fighting a hostile takeover attempt by E-II Holdings Inc., announced a cash tender offer for E-II. In 2007, British mining giant Rio Tinto
PLC, fighting off an unsolicited $131.57 billion takeover bid from Australian rival BHP Billiton
PLC, considered turning the tables on its rival and launching a counterbid for BHP. In 2009, Cadbury plc considered trying a Pac-Man defense if no bid emerged to challenge Kraft Foods
' hostile offer.
The name refers to the star of a video game Pac-Man
, in which the hero is at first chased around a maze of dots by 4 ghosts. However, after eating a "Power Pellet" dot, he is able to chase and devour the ghosts. The term (though not the technique) was coined by buyout guru Bruce Wasserstein
.
Internationally, perhaps the best-known case was that of Porsche
and the Volkswagen Group
, in which Porsche slowly acquired stake in the much larger Volkswagen Group, eventually to the point of owning over 50% of the company in 2009. However, later that year when the two companies announced an official merger, it was announced that Volkswagen would be the surviving partner.
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
in which a company that is threatened with a hostile takeover "turns the tables" by attempting to acquire its would-be buyer.
A major example in U.S. corporate history is the attempted hostile takeover of Martin Marietta
Martin Marietta
Martin Marietta Corporation was an American company founded in 1961 through the merger of The Martin Company and American-Marietta Corporation. The combined company became a leader in chemicals, aerospace, and electronics. In 1995, it merged with Lockheed Corporation to form Lockheed Martin. The...
by Bendix Corporation
Bendix Corporation
The Bendix Corporation was an American manufacturing and engineering company which during various times in its 60 year existence made brake systems, aeronautical hydraulics, avionics, aircraft and automobile fuel control systems, radios, televisions and computers, and which licensed its name for...
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
White knight (business)
In business, a white knight, or "friendly investor," may be a corporation or a person that intends to help another firm. There are many types of white knights...
," and the company was sold to Allied the same year. The incident was labeled a "Pac-Man defense" in retrospect.
In 1984, Securities Exchange Commission 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 isn’t 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 Inc., fighting a hostile takeover attempt by E-II Holdings Inc., announced a cash tender offer for E-II. In 2007, British mining giant Rio Tinto
Rio Tinto Group
The Rio Tinto Group is a diversified, British-Australian, multinational mining and resources group with headquarters in London and Melbourne. The company was founded in 1873, when a multinational consortium of investors purchased a mine complex on the Rio Tinto river, in Huelva, Spain from the...
PLC, fighting off an unsolicited $131.57 billion takeover bid from Australian rival BHP Billiton
BHP Billiton
BHP Billiton is a global mining, oil and gas company headquartered in Melbourne, Australia and with a major management office in London, United Kingdom...
PLC, considered turning the tables on its rival and launching a counterbid for BHP. In 2009, Cadbury plc considered trying a Pac-Man defense if no bid emerged to challenge Kraft Foods
Kraft Foods
Kraft Foods Inc. is an American confectionery, food and beverage conglomerate. It markets many brands in more than 170 countries. 12 of its brands annually earn more than $1 billion worldwide: Cadbury, Jacobs, Kraft, LU, Maxwell House, Milka, Nabisco, Oscar Mayer, Philadelphia, Trident, Tang...
' hostile offer.
The name refers to the star of a video game Pac-Man
Pac-Man
is an arcade game developed by Namco and licensed for distribution in the United States by Midway, first released in Japan on May 22, 1980. Immensely popular from its original release to the present day, Pac-Man is considered one of the classics of the medium, virtually synonymous with video games,...
, in which the hero is at first chased around a maze of dots by 4 ghosts. However, after eating a "Power Pellet" dot, he is able to chase and devour the ghosts. The term (though not the technique) was coined by buyout guru Bruce Wasserstein
Bruce Wasserstein
Bruce Jay Wasserstein was an American investment banker and businessman. He was a graduate of the McBurney School, University of Michigan, Harvard Business School, and Harvard Law School, and spent a year at Cambridge University...
.
Internationally, perhaps the best-known case was that of Porsche
Porsche
Porsche Automobil Holding SE, usually shortened to Porsche SE a Societas Europaea or European Public Company, is a German based holding company with investments in the automotive industry....
and the Volkswagen Group
Volkswagen Group
Volkswagen Group is a German multinational automobile manufacturing group. , Volkswagen was ranked as the world’s third largest motor vehicle manufacturer and Europe's largest....
, in which Porsche slowly acquired stake in the much larger Volkswagen Group, eventually to the point of owning over 50% of the company in 2009. However, later that year when the two companies announced an official merger, it was announced that Volkswagen would be the surviving partner.