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 acquires its would-be buyer.

Most people who grew up with video games remember the classic Pac-Man game, in which the player controls Pac-Man trying to consume various rewards while evading the ghosts in pursuit. Pac-Man is utterly defenseless and must run away from the ghosts until he consumes an "energizer" which allows Pac-Man to turn around and chase his pursuers for a period of time.

Using the Pac-Man Defense

The Pac-Man defense follows the video game's concept because the once vulnerable company (i.e. Pac-Man) stops trying to avoid his enemy (i.e. acquirer) and strikes back with a hostile takeover of his own. 

This tactic has been employed by companies that do not wish to be purchased and so try to scare off buyers. The takeover target uses whatever resources available (even taking from its war chest) to defeat the acquisition, most often by purchasing a large amount of shares in the other company.

An Example of the Pac-Man Defense in an Acquisition

Although the Pac-Man defense has been employed on several occasions, the most cited example is the Bendix Corporation's attempted hostile takeover of the Martin Marietta Corporation. 

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 Pac-Man defense was supported by United Technologies and Bendix was placed in the difficult position of fending off the counter-takeover. When the dust settled, Bendix was acquired, but not by Martin Marietta; instead, by the Allied Corporation