Practically, the acquirer must buy at least 51% or more paid up equity of the acquired company to enjoy full control over its operations. Today, despite a widely documented decline in its prevalence over the past five to 10 years, the poison pill continues to be an effective antitakeover. A shareholder rights plan, colloquially known as a poison pill, is a type of defensive tactic used by a corporations board of directors against a takeover in the field of mergers and acquisitions, shareholder rights plans were devised in the early 1980s as a way to prevent takeover bidders from negotiating a price for sale of shares directly with shareholders, and instead forcing the. The practice of using poison pills to fight takeover attempts has come under scrutiny both by critics and the courts in recent years for some of the following reasons. Often during a merger, executives are nervous about their job security and can be tempted to delay or sabotage the merger through defenses such as a poison pill poison pill the poison pill is a structural maneuver designed to thwart attempted takeovers, where the target company seeks to make. Although pills have been in common use as antitakeover devices since the 1980s, it is only nowin the context of antiactivist pillsthat many design features of pills start to matter. The architect of the antitakeover defense, martin lipton, explained to the deal why he. Various design features of a pill interact and features that may be harmless in pills designed to fend off a hostile takeover are unjustifiable in pills employed against an activist hedge fund. Oct 22, 20 early in this melodramatic financial thriller from bestseller kaplan evil, inc. Instead of warding off uninvited potential acquirers, the pill could ward off shareholder voice. Despite its fanciful name, the poison pill does not destroy the target company. It is intended to affect the aggressor, which will be burdened with costs if it succeeds in its takeover. While a board, acting in good faith, should be permitted to use a pill to preserve and perfect the shareholder decisionmaking process, it should, in.
Aug 15, 2008 takeover bid has ever seen a poison pill fully executed management teams typically have used the strategy as a deterrent and negotiation tool, buying their company time to bargain for a better. The poison pill is unique among antitakeover strategies. Because the board of directors can cancel the poison pill, potential acquirers seek the agreement of a companys board as an initial step in a takeover bid. Early in this melodramatic financial thriller from bestseller kaplan evil, inc. Mar 22, 2017 we provide a comprehensive policy and doctrinal analysis of the use of poison pills again activists in corporate governance contests. The poison pill is one of the most powerful defenses against hostile takeovers. Sons to rescind its poison pill rights defense put in place last august. Divestitures and antitakeover defense business strategy. The poison pill is a defensive strategy used against corporate takeovers. Practically, the acquirer must buy at least 51% or more paid up equity of the acquired company to enjoy full.
Although the original poison pills were used as anti takeover defenses, delaware. The poison pill device 2011 edition securities law handbook series on. Measures taken on a continual or sporadic basis by a firms management in order to prevent or deter unwanted takeovers. Of the antitakeover devices that comprise the bcf index, the presence of a poison pill dominates all others. Netflix uses poison pill to prevent hostile takeover. A poison pill is a tactic utilized by companies to prevent or discourage hostile takeovers. Indeed, the creativity of deal lawyers and bankers has added such terms as poison pill, shark. This device has proven to be a highly effective defensive strategy used against corporate takeovers a poison pill to deter potential buyers. In flipover plans exercised rights can be used to purchase stock in the bidder on favorable terms.
Proxy advisory firms, such as institutional shareholder services inc. Takeover defenses and wealth effects on securityholders. Poison pill, a subclass of corporate anti takeover shark repellent to make the corporate target unappealing to an attacker. The poison pill device 2011 edition securities law handbook series. Among the colorfully named takeover defenses that developed are. Flipin poison pill can be chewable, which means that the shareholders may force a pill redemption by a vote within a certain timeframe if the tender offer is an allcash offer for all of the. Other antitakeover measures include poison pill defense, targeted share repurchase, and standstill agreements. Describe the basic mechanics of implementing a poison pill antitakeover measure. Established as a mechanism in 1982, the shareholder rights plan is often more pleasantly referred to as the poison pill.
The discussion of anti takeover methods, including the poison pill, has shifted into high gear since fall 2008. This book supplies practitioners with an examination of the development and types of poison pills, and an analysis of recent judicial decisions in the area. This monograph sheds light on the pill s many subtleties, giving particular attention to its economic effects. In effect, it is an agreement adopted by a companys. Parsons said, however, that delaware courts have never judged an antitakeover poison pill under the blasius standard. Although poison pills provide a number of benefits to corporations and investors, they can also be risky. Antiactivist poison pills by marcel kahan, edward b. Netflix is making moves to prevent a hostile takeover from billionaire carl icahn, who disclosed a nearly 10 percent stake in the company. In a poison pill defense, existing company shareholders have the right to purchase. One of the most controversial financial innovations of recent years, the poison pill is a strategic deterrence that is widely used, but its use comes with a price. In flip in plans exercised rights are repurchased by the issuing firm at. Indeed, the creativity of deal lawyers and bankers has added such terms as poison pill, shark repellent, pacman defense and white squire to the. Instead, he applied the twopronged unocal test, which upholds boards rights to adopt defensive measures as long as their corporation faces a takeover threat and the poison pill is proportional to that threat.
Over time, however, what actually happened was that almost all bids disappeared and antitakeover measures were never triggered because potential raiders were forced to deal with the boards rather than the shareowners directly. Poison pill by glenn kaplan meet your next favorite book. Using shareholder rights plans poison pills to fight. Shareholder rights plan, also called a poison pill, a subclass of anti takeover provisions that dilutes the attackers power. In addition to state takeover legislation, the takeover environment of the 1980s spurred the development of a host of new antitakeover defenses to fend off hostile bidders. Instead of warding off uninvited potential acquirers, the. The pills can be flipin, flipover, dead hand, and slowno hand. Shareholder rights plan, also called a poison pill, a subclass of antitakeover. An antitakeover pill is generally reasonable as long as the board reasonably.
Golden parachute understand how golden parachutes work. Poison pill has the bones of a good corporatetakeover potboiler, an underexplored genre. The poison pill is unique among anti takeover strategies. At the simplest level, takeovers are about buying stock. Named after the cyanide pill that secret government agents are said to be instructed to swallow if capture is imminent. The poison pill anti takeover defense question, but empirical testing cannot measure the loss of opportunity that might result from driving away potential bidders. The fair trade commission ftc previously opposed the introduction of the poison. Poison pill antitakeover device that gives a prospective acquirees shareholders the right to buy shares of the firm or shares of anyone who acquires the firm at a deep discount to their fair market value. Takeover bid a takeover bid refers to the purchase of a company the target by another company the acquirer. Adopting a poison pill in response to shareholder activism in his regular column, frank aquila drafts a memo to a board explaining the considerations it should evaluate when deciding whether to adopt a poison pill. Our results suggest that firms with a poison pill in place are reluctant to. It provides the mechanics, procedures, and key drafting language, plus realworld examples to illustrate the ins and outs of this strategy.
Bruners solution is to simulate the potential gain from restructuring and compare it with the potential loss that the poison pill may occasion. Poison pill a shareholder rights plan to prevent hostile. The poison pill anti takeover defense economy if widely adopted. Poison pills definition, example top 6 types with reasons. Although the original poison pills were used as antitakeover defenses, delaware.
The poison pill antitakeover defense question, but empirical testing cannot measure the loss of opportunity that might result from driving away potential bidders. The poison pill technique, sometimes also known as a shareholder rights plan, is a form of defense against a potential hostile takeover. Poison pill poison pill antitakeover device that gives a prospective acquirees shareholders the right to buy. Suicide pill, a physical pill for suicide by poison. The christian science monitor is an international news organization that delivers thoughtful, global coverage via its website, weekly magazine, online daily edition, and email newsletters. A typically successful defensive strategy in preventing a hostile takeover is something referred to as a shareholder rights plan. Poison pill nba, a type of player contract provision for some free agents in the national.
Undoing the powerful antitakeover force of staggered. Adopting a poison pill in response to shareholder activism. The shareholder rights agreement or poison pill first became popular in the 1980s as a way to provide a target board with negotiating leverage in the face of a hostile takeover attempt. An anti takeover pill is generally reasonable as long as the board reasonably believed that the price of an acquisition offer was inadequate and the pill permits the bidder to replace the board, in the ordinary course, through a proxy contest and have the new board redeem the pill. Antitakeover law pending in new york rings wall street. We provide a comprehensive policy and doctrinal analysis of the use of poison pills again activists in corporate governance contests. The nol poison pill, while facially plausible as a tool to protect tax assets from impairment caused by a section 382 ownership change, may be a stepping stone to a lowtrigger antishareholder pill. The poison pill device contains the strategies needed to avoid hostile takeovers by utilizing shareholders rights plans, or poison pills.
Abstracts of selected poison pills, samples of relevant sec filings, poison pill proxy materials, and other materials are included in the work. A company targeted for a takeover uses a poison pill strategy to make shares of the. May 05, 2014 sothebys pill, they argued, deserved scrutiny under the blasius standard because it was intended to sway the proxy vote for board seats. With a takeover bid, the acquirer typically offers cash, stock, or a mix of both, bidding a.
Peter cares only for money, just like his father and emmas ex, josh katz, who lives in a grand house in greenwich, conn. Foundations of dutch discount and dutch poison pills. Keep any corporation independent and free from outside control. Rights can be exercised after a tender offer or the accumulation of a large block of shares by an outside party.
A defensive strategy based on issuing special stock that is used to deter aggressors in corporate takeover attempts. Poison pill, a subclass of corporate antitakeover shark repellent to make the corporate target unappealing to an attacker. However, repellent characters, amateurish writing and a loss of focus on the main action make for a missed opportunity. The ascent is the motley fools new personal finance brand devoted to helping you live a richer life. Poison pill amendment or wrecking amendment, an addition to a legislative bill that renders it ineffective. Mar 01, 2016 the nol poison pill, while facially plausible as a tool to protect tax assets from impairment caused by a section 382 ownership change, may be a stepping stone to a lowtrigger antishareholder pill. A takeover is a form of an acquisition, wherein the company offers a bid for the purchase of a certain block of the equity of another company target to exercise complete control over its affairs. Popularly known as corporate raiding, takeovers are hostile mergers intended to acquire a corporation. Apr 03, 2011 the shareholder rights agreement or poison pill first became popular in the 1980s as a way to provide a target board with negotiating leverage in the face of a hostile takeover attempt. Poison pill rights to preferred stock issued to shareholders. Using shareholder rights plans poison pills to fight takeovers. Poison pill poison pill anti takeover device that gives a prospective acquirees shareholders the right to buy.