In several business practices, when a company wants to acquire another one, the company will reach out to the higher authorities of the target company and make a bid. The target company can decline or accept the bid. Now if the bid is rejected, the buyer company may just look to walk away.
Now, sometimes the buyer may not give up that easily and may look to acquire large chunks of shares in the target company and ultimately have enough power to replace the management and get the bid approved. PAC-MAN comes into play in this very scenario.
Pac man is an aggressive defense strategy towards this hostile takeover attempt. This measure is implemented to deter the buyer and make it harder and harder for the buying company to acquire the target. In this method, the target company becomes aggressive. It buys back its shares, starts acquiring shares of the buyer company in the hopes of scaring it off.
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This method is often used as the last resort and has several drawbacks. It burns up a lot of cash, taking a toll on the company’s resources. This in turn leads to the shareholders suffering losses in the long run.
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