Playing the Pac-Man Defense

If you’ve ever played the hit game of the 1980’s then you’re probably familiar with the iconic yellow video game character whose origins come from a pizza missing a slice. But did you know this game of eating power pellets and outrunning ghosts inspired a business strategy still being used by companies today?

The Pac-Man Defense is a defense tactic used by companies to prevent another company from acquiring it. The defending company will try to scare off the acquiring company by buying out significant shares of the acquiring company. You might think that the acquiring company shouldn’t be intimidated by this strategy because the defending company is supposedly easy to conquer. While this might appear to be true, the pac-man defense allows the defending company to procure money using drastic measures in order to win the buy out. One way to do this is by selling non-vital assets or by tapping into the defending company’s war chest otherwise known as reserve assets.

The game inspires the defense tactic because like pac-man, the defending company can scare the acquiring company by gathering enough assets to perform a buyout like pac-man eats power pellets to be able to eat the ghosts.

A famous example of the pac-man defense being used happened in 1982. Bendix Corporation attempted to takeover Martin Marietta. Martin Marietta responded by selling their non-core business and using the money to buy shares of Bendix Corporation. After a bout of buyouts, Martin Marietta remained intact while Bendix Corporation was acquired by another company, the Allied Corporation.

So if you ever find yourself in a situation where you feel like you can take on a hostile takeover with another hostile takeover, then go for it. Be like pac-man and conquer your fears, you might just win.