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Hostile Takeover Defense – White Knight & Pac-Man Defenses
⁃ Alternative Acquisition Defenses – In some cases, a corporation may seek to acquire or be acquired in an alternative arrangement that thwarts the acquirer’s efforts.
⁃ White Knight Defense – In some cases the board may go so far as to endorse acquisition by a different acquirer. The endorsed acquirer does so to avoid the corporation falling into the hands of the original intended acquirer. This process is known as a “white-knight” defense to a hostile takeover.
⁃ Example: ABC Corp has a close relationship with 123 Corp. In order to fend off an acquirer, ABC Corp endorses a merger or acquisition by 123 Corp. This may make acquisition of shares too expensive and impractical for the acquirer.
⁃ Pac-Man Defense – The target corporation may seek to acquire the acquirer, if the acquirer is a public corporation with stock available for purchase. This is a sort of counter attack that may thwart the takeover effort.
⁃ Example: 123 Corp makes a tender offer for ABC Corp shares. ABC Corp board is not interested in combining with 123 Corp. They do, however, recognize that a combination could product substantial value. ABC Corp, in turn, makes a tender offer for 123 Corp stock. If this offer eclipses the expected increase in share value of 123 Corp after acquiring ABC Corp, then ABC Corp may be able to successfully fend off 123 Corp’s offer.