pac man defence
Pac Man Defence is a takeover strategy where a target company tries to buy its attacker.
In plain English
Most people run when a fight starts at the bus stop, but a few turn around and grab the attacker by the shirt.
That second reaction is what company bosses do when an unwanted suitor shows up with a bag of cash to take over their firm. Instead of hiding behind lawyers or selling off their favourite assets, the company being hunted turns around and bids to buy the hunter.
The name comes from the old arcade game where the little yellow circle eats a power pill and suddenly chases the ghosts that were chasing him. On the Nigerian Exchange, if a rival conglomerate attempts to swallow a mid sized food producer in Ikeja, the board of that smaller firm might gather cash, secure bank loans, and launch a counter offer to buy the giant instead.
A famous foreign case happened in America when Martin Marietta turned around to buy Bendix after Bendix tried to acquire them first. It creates absolute chaos because both boards are spending huge sums trying to swallow each other at the exact same time.
This move is dangerous and deeply expensive. It often leaves the surviving business buried under heavy bank debt, but it tells the aggressor that taking over this house will cost them their own roof.
A rival bid for his firm, so Femi raised ₦400,000,000 to buy them instead.
Questions people ask
Why would a smaller company attempt this?
It scares the buyer away. Even if the smaller firm cannot easily afford the purchase, the sudden counter attack forces the hostile buyer to spend time and cash defending its own shares.
What happens if both companies succeed in buying shares?
It creates a messy legal deadlock. Both businesses end up owning big chunks of each other, which confuses shareholders and usually forces both sides to sit down and call a truce.
Does this tactic hurt regular shareholders?
It can hurt them badly. Raising emergency cash or taking huge bank loans to fund an angry counter bid often drains company reserves and weakens future dividend payments.
Last reviewed