The Pac-Man defense is a defensive business strategy used to stave off a hostile takeover , in which a company that is threatened with a hostile takeover "turns the tables" by attempting to acquire its would-be buyer. The name refers to Pac-Man , a video game in which the protagonist is at first chased around a maze of dots by 4 ghosts. However, after eating a " Power Pellet " dot, he is able to chase and devour the ghosts . The term (though not the technique) was coined by buyout guru Bruce Wasserstein .
31-714: When T. Boone Pickens 's Mesa Petroleum planned a tender offer for Cities Service in 1981, Freeport-McMoran and Louisiana Land & Exploration agreed to help him. An investment banker working for Cities Service warned Freeport and Louisiana Land in August 1981 that if they did not end their partnership with Pickens, Cities Service would take them over; the threat succeeded. When Pickens found new partners including Southland Corporation , Cities Service announced in May 1982 its own tender offer for Mesa, and also threatened to take over Southland. A major example in U.S. corporate history
62-440: A company they perceive as possibly lacking liquidity. For example, if all shareholders were to simultaneously try to sell their shares in the open market, this would immediately create downward pressure on the price for which the share is traded unless there were an equal number of buyers willing to purchase the security at the price the sellers demand. So, sellers would have to either reduce their price or choose not to sell. Thus,
93-477: A large stake in Volkswagen, eventually to the point of owning over 75% of the company in 2008 and potentially triggering Germany's " Volkswagen law ". 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 ,
124-401: A long period of time after maturity into a profitable company. However, from 1997 to 2012, the number of corporations publicly traded on US stock exchanges dropped 45%. According to one observer ( Gerald F. Davis ), "public corporations have become less concentrated, less integrated, less interconnected at the top, shorter lived, less remunerative for average investors, and less prevalent since
155-553: A separate entity, its former shareholders receiving compensation in the form of either cash, shares in the purchasing company or a combination of both. When the compensation is primarily shares then the deal is often considered a merger . Subsidiaries and joint ventures can also be created de novo . That often happens in the financial sector. Subsidiaries and joint ventures of publicly traded companies are not generally considered to be privately held companies (even though they themselves are not publicly traded) and are generally subject to
186-401: A specified price during a specified time, subject to the tendering of a minimum and maximum number of shares. In a tender offer, the bidder contacts shareholders directly; the directors of the company may or may not have endorsed the tender offer proposal. To induce the shareholders of the target company to sell, the acquirer's offer price is usually at a premium over the current market price of
217-523: A stock exchange ( listed company ), which facilitates the trade of shares, or not ( unlisted public company ). In some jurisdictions, public companies over a certain size must be listed on an exchange. In most cases, public companies are private enterprises in the private sector, and "public" emphasizes their reporting and trading on the public markets. Public companies are formed within the legal systems of particular states and so have associations and formal designations, which are distinct and separate in
248-399: A taxable event triggering capital gains or losses, which may be long-term or short-term depending on the shareholder's holding period. Public company A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on
279-454: A term sheet which summarizes the material terms of the tender offer in plain English; (ii) the bidder's identity and background; and (iii) the bidder's history with the target company. In addition, a potential acquirer must file Schedule 13D within 10 days of acquiring more than 5% of the shares of another company. The consummation of a tender offer resulting in payment to the shareholder is
310-408: Is privately held can buy out the shareholders of a public company, taking the company off the public markets. That is typically done through a leveraged buyout and occurs when the buyers believe the securities have been undervalued by investors. In some cases, public companies that are in severe financial distress may also approach a private company or companies to take over ownership and management of
341-519: 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
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#1732781190035372-404: Is when a company has little or no trading activity and the market price is simply the price at which the most recent trade took place, which could be days or weeks ago. This occurs when there are no buyers willing to purchase the securities at the price being offered by the sellers and there are no sellers willing to sell at the price the buyers are willing to pay. While this is rare when the company
403-804: The United States , tender offers are regulated by the Williams Act . SEC Regulation 14E also governs tender offers. It covers such matters as: In the United States, under the Williams Act , codified in Section 13(d) and Section 14(d)(1) of the Securities Exchange Act of 1934 , a bidder must file Schedule TO with the SEC upon commencement of the tender offer. Among the matters required to be disclosed in schedule TO are: (i)
434-436: The United States, companies with over 500 shareholders in some instances are required to report under the Securities Exchange Act of 1934 ; companies that report under the 1934 Act are generally deemed public companies. A public company possess some advantages over privately held businesses. Many stock exchanges require that publicly traded companies have their accounts regularly audited by outside auditors and then publish
465-470: The accounts to their shareholders. Besides the cost, that may make useful information available to competitors. Various other annual and quarterly reports are also required by law. In the United States, the Sarbanes–Oxley Act imposes additional requirements. The requirement for audited books is not imposed by the exchange known as OTC Pink. The shares may be maliciously held by outside shareholders and
496-600: The chairman of Volkswagen and a board member of Porsche, 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, although both families supported
527-432: The company. One way of doing so would be to make a rights issue designed to enable the new investor to acquire a supermajority . With a supermajority, the company could then be relisted, or privatized. Alternatively, a publicly traded company may be purchased by one or more other publicly traded companies, with the target company becoming either a subsidiary or joint venture of the purchaser(s), or ceasing to exist as
558-422: The core of international law disputes with regard to industry and trade. Usually, the securities of a publicly traded company are owned by many investors while the shares of a privately held company are owned by relatively few shareholders. A company with many shareholders is not necessarily a publicly traded company. Conversely, a publicly traded company typically (but not necessarily) has many shareholders. In
589-491: The deal. However, later that year when the two companies announced an official merger, Volkswagen was announced as the surviving partner. Tender offer In corporate finance , a tender offer is a type of public takeover bid. The tender offer is a public, open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded corporation (the target corporation) to tender their stock for sale at
620-444: The firm's stock. For many years, newly-created companies were privately held but held initial public offering to become publicly traded company or to be acquired by another company if they became larger and more profitable or had promising prospects. More infrequently, some companies such as the investment banking firm Goldman Sachs and the logistics services provider United Parcel Service (UPS) chose to remain privately held for
651-573: 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. 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. In 2007, British mining giant Rio Tinto , fighting off an unsolicited $ 131.57 billion takeover bid from Australian rival BHP Billiton , considered turning
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#1732781190035682-425: The number of trades in a given period of time, commonly referred to as the "volume" is important when determining how well a company's market capitalization reflects true fair market value of the company as a whole. The higher the volume, the more the fair market value of the company is likely to be reflected by its market capitalization. Another example of the impact of volume on the accuracy of market capitalization
713-793: The original founders or owners may lose benefits and control. The principal–agent problem , or the agency problem is a key weakness of public companies. The separation of a company's ownership and control is especially prevalent in such countries as the United Kingdom and the United States. In the United States, the Securities and Exchange Commission requires firms whose stock is traded publicly to report their major shareholders each year. The reports identify all institutional shareholders (primarily firms that own stock in other companies), all company officials who own shares in their firm, and all individuals or institutions owning more than 5% of
744-510: The polity in which they reside. In the United States , for example, a public company is usually a type of corporation though a corporation need not be a public company. In the United Kingdom , it is usually a public limited company (plc). In France , it is a société anonyme (SA). In Germany , it is an Aktiengesellschaft (AG). While the general idea of a public company may be similar, differences are meaningful and are at
775-497: The price per share. For example, a company with two million shares outstanding and a price per share of US$ 40 has a market capitalization of US$ 80 million. However, a company's market capitalization should not be confused with the fair market value of the company as a whole since the price per share are influenced by other factors such as the volume of shares traded. Low trading volume can cause artificially low prices for securities, due to investors being apprehensive of investing in
806-446: The same reporting requirements as publicly traded companies. Finally, shares in subsidiaries and joint ventures can be (re)-offered to the public at any time. Firms that are sold in this manner are called spin-outs . Most industrialized jurisdictions have enacted laws and regulations that detail the steps that prospective owners (public or private) must undertake if they wish to take over a publicly traded corporation. That often entails
837-538: The tables on its rival and launching a counterbid for BHP. In 2009, Cadbury considered trying a Pac-Man defense if no bid emerged to challenge Kraft Foods ' hostile offer. 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
868-410: The target company's shares. For example, if a target corporation's stock was trading at $ 10 per share, an acquirer might offer $ 11.50 per share to shareholders on the condition that 51% of shareholders agree. Cash or securities may be offered to the target company's shareholders, although a tender offer in which securities are offered as consideration is generally referred to as an " exchange offer ". In
899-428: The turn of the 21st century". Davis argues that technological changes such as the decline in price and increasing power, quality and flexibility of computer numerical control machines and newer digitally enabled tools such as 3D printing will lead to smaller and more local organization of production. In corporate privatization, more often called " going private ," a group of private investors or another company that
930-409: The would-be buyer(s) making a formal offer for each share of the company to shareholders. The shares of a publicly traded company are often traded on a stock exchange . The value or "size" of a company is called its market capitalization , a term which is often shortened to "market cap". This is calculated as the number of shares outstanding (as opposed to authorized but not necessarily issued) times
961-412: 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 is not acting solely out of its desire to stay in office. One concern is that the money spent to gain control of