Pac-Man defense

A major example in U.S. corporate history is the attempted hostile takeover of Martin Marietta by Bendix Corporation in 1982. In response, 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.

In 1984, U.S. Securities and Exchange Commission commissioners said that the Pac-Man defense was cause for “serious concern,” but balked at endorsing any federal prohibition against the tactic. The commissioners acknowledged a Pac-Man defense can benefit shareholders under certain circumstances, but emphasized that management, in resorting to this tactic, must bear the burden of proving it isn’t acting solely out of its desire to stay in office. One concern is that the money spent to gain control of the intruding company, which includes payment for the services of lawyers and other professionals needed to mount that defense, represents substantial funds that could have otherwise been used to improve the company’s business or increase its profits.[3]

The next Pac-Man defense occurred in 1988, when American Brands, fighting a hostile takeover attempt by E-II Holdings, announced a cash tender offer for E-II.[4] In 2007, British mining giant Rio Tinto PLC, fighting off an unsolicited $131.57 billion takeover bid from Australian rival BHP Billiton Limited, considered turning the tables on its rival and launching a counterbid for BHP.[5] In 2009, Cadbury plc considered trying a Pac-Man defense if no bid emerged to challenge Kraft Foods' hostile offer.[6]

Internationally, perhaps the best-known case was that of Porsche and the Volkswagen Group, in which Porsche, under the leadership of Wendelin Wiedeking, led a hostile takeover of the much-larger Volkswagen Group by slowly acquiring a large stake in Volkswagen, eventually to the point of owning over 75% of the company in 2008.[7] By October 2008, Porsche, who was enjoying record profitability, suddenly ran out of money during the financial crisis of 2007–08 and banks were reluctant to lend any more money to Porsche; in fact, they wanted their loans paid back immediately. Ferdinand Piëch, the chairman of Volkswagen and a board member of Porsche, who was in fact the grandson of Ferdinand Porsche, founder of Porsche and a co-founder of what became Volkswagen, loaned Porsche enough money to cover their debts, and Volkswagen, which Porsche tried to acquire, became the white knight and Volkswagen effectively took over Porsche. The unique situation had much to do with the historical closeness of the Volkswagen Group to Porsche, and the battle between the Porsche and Piëch families (both descended from Ferdinand Porsche) for control of Porsche.[8] However, later that year when the two companies announced an official merger, Volkswagen was announced as the surviving partner.[9]