Pac-Man. The Game
Anyone with interest in video or arcade games would remember this legendary game from the 1980s. This Japanese video game has been getting releases for almost 40 years, sold over 48 million copies across gaming platforms, and grossed over USD 14 Billion – might sound less in the modern mobile gaming world but is a humungous achievement considering the era it belonged to. So, how did a video game strategy become synonymous with a corporate M&A strategy?
In the Pac-Man game, Pac-Man is being chased by 4 ghosts – Blinky, Pinky, Inky, and Clyde. If any ghost catches Pac-Man, it devours Pac-Man and the game ends. However, there are Power-Pellet dots in the game, eating which Pac-Man gets special powers and now it can devour a ghost. This is Pac-Man defense in the game.
In business, Pac-Man defense is an Anti-Takeover strategy where if a firm is facing a hostile takeover, it can use any or all of its resources (Power-Pellet) to turn the table around and take over the hostile firm. While this defense against a hostile takeover is famous for reverse takeover, a lot of times it may be an effective method to chase away the hostile firm.
Pac-Man Defense in Action
There are many instances of Pac-Man defense in action, including 3 famous ones
- 1982. Bendix Corp. attempted to acquire Martin Marietta. Martin Marietta’s management retaliated by selling off some corporate divisions and borrowing over $1 billion to counter the acquisition. Martin Marietta influenced Allied Corp. to acquire Bendix which happened in the same year.
- 2008. Porsche attempted to take over a larger Volkswagen Group by acquiring around 75% of the group. The 2008 financial crisis happened and suddenly Porsche was out of money, with banks at the door. Volkswagen Group bailed them out and eventually Porsche officially merged with Volkswagen Group under the name of Volkswagen Group.
- 2013. Jos. A. Bank bid for their competitor Men’s Wearhouse. Men’s Wearhouse countered with their bid. Jos. A. Bank acquired Eddie Bauer to improve its market position. However, Men’s Wearhouse ended this strategy by acquiring Jos. A. Bank.
Pac-Man Defense Demerits
While the defense works, it is often criticized for being a money-draining strategy instead of a growth strategy. Both the companies spend considerable resources in attempting as well as fending off the acquisition while the process is in progress. This may lead to serious deterioration of company or shareholder wealth that may take years to recover and even jeopardize future investment plans.
Even though this strategy is more suitable for large firms that have a war chest, the knowledge and implementation might be useful for startups too to fend off acquisition attacks, esp. when they are funded and the investors are especially interested in the deal.