Introduction
Pac-Man is a high-risk hostile defending takeover strategy in which the target firm attempts to take over the business which made the hostile offer by purchasing large quantities of the stock of the prospective acquirer.
The defence of the Pac-Man is intended to discourage the prospective acquirer, who does not want to be taken over by himself. The video game, Pac-Man, originated in Japan in 1980 and offered an appropriate visual depiction of how a targeted business could turn the tables on an angry and determined gobbler.
Understanding a Pac-Man is in Detail
A firm that wishes to purchase another firm will be making a polite approach to the target's board of directors in standard business practices. The target could decline politely, and that could be left to the interested party.
On the other hand, the company will continue to attempt to persuade the board of the goal to agree to be bought, usually by raising the price of the bid. When the target board is still refusing the proposals, in most situations, the optimistic acquirer will end their approaches. Unless it's really planning to buy the other product, though, it may be aggressive.
A Note
The Pac-Man defence doesn't always work, but Martin Marietta used it effectively in 1982 to keep Bendix Corp from taking over. American brands successfully used it against E-II in 1988, and Totalfina used it to block Elf Aquitaine's takeover in 1999.
