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What Is Pac-Man Strategy?

The Pac-Man strategy, also known as the Pac-Man defense, is a business strategy in which a hostile takeover is avoided by purchasing the attacking business.
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  • Written By: Tara Barnett
  • Edited By: Melissa Wiley
  • Last Modified Date: 17 October 2014
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The Pac-Man strategy, also known as the Pac-Man defense, is a business strategy in which a hostile takeover is avoided by purchasing the attacking business. This term, coined by Bruce Wasserstein, is a reference to the way in which the arcade game Pac-Man is played. While not always successful, the Pac-Man strategy has been used by many companies to avoid being taken over. Sometimes, this strategy can be used as a vengeance tactic.

To understand the Pac-Man strategy, the reference to the Pac-Man game must first be understood. When playing Pac-Man, the player is chased by several ghosts who have the capacity to kill the player. This changes when the player eats a power pellet. After a power pellet has been eaten, the player is then able to turn around and eat the ghosts who were once attacking.

A similar strategy can be used in the real world between businesses. When an attacking business wants to acquire a company, the business can purchase large amounts of stock in that company until it acquires a controlling share. This does not necessarily happen quickly, but when the attacked company notices, it may decide to take action against the attacker to stop the ongoing attack and to regain control of not only the original company, but the attacker as well.

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One problem with this strategy is that it can be very expensive, and it can be bad for shareholders in some circumstances. When a company applies the Pac-Man strategy, it is often not because it is in the best interests of the company as a whole, but because a leadership change could occur if the company were to be acquired. Top officials within the company being attacked have an interest in maintaining the integrity of the company for reasons of job security. Even so, it should be noted that a merger, even when instigated hostilely, is not always bad for business.

The Pac-Man strategy has been used historically by several large companies, including by the Volkswagen Group against a takeover attempt by Porsche. In its most basic form, this tactic has been used by individual businesses since before the term was even invented. The reason it is so popular and successful is that not only does buying the original buyer prevent a hostile takeover, but it also usually strengthens the existing company. On a visceral level, it also serves as a way to enact vengeance on an attacking company, as owning that company can sometimes enable getting rid of the attackers entirely.

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