Friends will find Pac-Man out of fashion
The 1980s revival continues. Music fans have been flocking to see the Human League and Spandau Ballet on their reunion tours. Now M&A aficionados can savour their own mini revival. Yes, it’s the return of the Pac-Man bid.
Two mid-sized British insurers, Friends Provident and Resolution have revived this gambit, named after a mind-bogglingly dull computer game where the objective is to eat your pursuers rather than be eaten yourself. In M&A, this involves the target of a bid approach (in this case, Friends) turning on the bidder and launching an offer itself.
In the case of Resolution there was a certain logic in so doing. Resolution is effectively a cash shell company, which has opaque governance. Its nil premium share for share approach offered little to Friends other than the chance to hand over 10 percent of the combined company’s profits to Resolution’s management. The proposed nil premium counterbid made little sense (other than to eliminate the 10 percent profit share). But it did at least tease out a slightly more generous bid proposal from Resolution.
Pac-Man defences are rare in M&A — and for good reason. They’re wholly unconvincing. If you get a bid for your company, and think that the combination has merit, squabbling over who bids for whom seems to miss the point. At worst it smacks of management self interest.
This is not the only reason there have been very few Pac-Man defences. The bigger problem is that they are uniformly unsuccessful. The target never actually gets to gobble up the predator. It is 10 years since Elf Aquitaine’s desperate attempt to see off an ultimately successful bid by fellow French oil major Total. The same year, British regional brewer Marston’s also used the defence against a bid from Wolverhampton and Dudley Breweries. It too failed.
That doesn’t stop it from rearing its ugly head from time to time. Pac-Man defences were raised as a possibility for Rio Tinto to turn the tables on BHP Billiton and more recently as a means for Anglo American to round on Xstrata. But generally that’s all it is: talk.
The Resolution-Friends situation is an unusual one. Resolution is a cash company that is desperate to do a deal, while Friends rejected a 150 pence per share bid from J.C. Flowers last year. There are particular reasons they have ended up in a sort of death embrace. So while the Spandaus may be back in favour, the Pac-Man bid is likely to remain consigned to the archive.