You run a public company that specializes in providing fruit juice colonics. A major hedge fund has decided that it wants to take your company private and replace its management (meaning you). For obvious reasons, you don't want this to happen.
Your stock is trading at $10 a share. The hedge fund launches a tender offer for your shares at $12 a share. The move means they will pay any of your shareholders $12 for their shares, an attempt to get a large enough stake in the company that they can force the takeover to take place.
Time to fight fire with fire. You launch your own tender offer, buying shares back from your own shareholders to prevent the hedge fund from getting them.
The strategy is called a self-defense tender. It's the corporate equivalent of licking all the cookies so you can eat them all. A self-tender defense consists of the target of a hostile takeover starting its own tender offer, counteracting the tender being run by the firm attempting to achieve the acquisition.
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Finance: What is a Pac Man Defense?21 Views
Finance a la shmoop what is a pacman defense?
[Pacman eating] yeah well wacka wacka to you too...Hostile takeovers are rare in real life not so
rare in pac-man but when they do happen there exists a whole cadre of strategies
behind defending them at least from the company's perspective being taken over
there and pac-man defense is inarguably the best named strategy of all of
them in essence what happens when we'll say an angry competitor let's call him
blinky Inc tries to buy an angrier competitor let's call them inky inc.
well blinky would be buying shares of inky in the open marketplace filing to [Blinky and inky appear]
go past 15% ownership and eventually own enough shares to elect its own Board of
Directors and make a takeover happen well in a Pac Man defense as blinky is
snarfing up shares of inky, inky buys shares of blinky sort of turning the
tables you know like this and while you're gobbling up that competition and [Pacman gobbling competition]
don't forget to eat a bunch of cherries or a strawberry every once in a while
because you know you still need your fruits and veggies
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