It typically includes assets that can be easily liquidated to produce cash such as bank deposits and T-Bills. War chest: A war chest is a cushion of cash stored by the company in the event of adverse events – a sort of emergency expenses fund.The latter method of financing offers the additional benefit of diluting the target company’s outstanding stock shares, so the acquirer would have to purchase more shares in order to obtain 50%+ of the total outstanding stock of the target company. Borrowing cash: The company can borrow cash from lenders or by issuing bonds or additional stock shares.Selling non-core business units: The company can sell off non-core business units to generate cash.Selling its own assets: The target company can use existing cash or cash equivalent assets, or it can sell off non-vital assets to generate enough money to buy large amounts of shares of the acquirer.The resources needed for the strategy are usually made available through: The target must have the finances available to purchase enough shares of the potential acquiring company to be a credible threat to the acquirer’s control of its own firm.
How to Employ a Pac-Man Defense Strategyįor a company to use a Pac-Man Defense effectively, the target must possess substantial resources, since it is attempting a hostile takeover of its own. The Pac-Man Defense was so named because the companies involved are, similar to the action in the game, “gobbling” each other up. The defensive strategy gives the target company the power to fend off the hostile takeover. In the Pac-Man takeover defense, the target company “eating” shares of the acquiring company is analogous to consuming a power pellet. In the game, if the Pac-Man consumes a power pellet, he or she is able to turn around and eliminate the ghosts. Recall from the Pac-Man game that the player must avoid ghosts that are trying to chase and eliminate the player.
When Porsche fell on financial hard times in the aftermath of the 2008 Financial Crisis, Volkswagen ended up turning around and buying up shares of Porsche on the cheap, enabling it to take over Porsche altogether by 2012. A real-life example of this occurred between 20 when Porsche attempted, but failed, to buy enough stock shares to acquire a controlling interest in Volkswagen. In essence, the Pac-Man defense responds to a hostile takeover attempt with a hostile takeover attempt.
To learn more about M&A Transactions check out the FMVA™ Program. The purpose of the Pac-Man Defense, as with any defensive strategy against a hostile takeover, is to make a takeover very difficult for the acquiring company, in hopes that it will abandon the attempt.
This takeover prevention strategy is implemented by the target company turning things around by trying to take over the acquirer. The Pac-Man Defense is a strategy used by targeted companies to prevent a hostile takeover.