Abstract

The newly developed Pac-Man' strategy demonstrates once again the persistence and striking ingenuity of target companies in contested tender offers. In the Pac-Man gambit, the target or object of a tender offer makes a bid for the original offeror. By becoming the aggressor, the target may dissuade the original offeror from pursuing its bid and may even obtain control of the original offeror. However elegant this move from the standpoint of grand corporate strategy, its legal consequences are highly uncertain. This legal uncertainty may explain why the Pac-Man defense has not been used more extensively. This comment identifies the legal problems likely to attend the Pac-Man defense and ventures some suggestions for their resolution. Although it eschews much consideration of the economic or societal desirability of such transactions, this Comment also examines possible incentives that might influence the use of Pac-Man strategies. In the typical case, one party, 0, offers to buy all the shares, or at least a majority of the shares, of a target corporation, T. T's management does not welcome O's bid and, to defend against it, makes a bid for all or for a majority of O's shares. Assume that T makes its bid for O while O's bid for T is still outstanding and that the closing dates of the two offers are relatively close. Assume further that each corporation offers cash rather than its own securities for the other corporation's

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