A poison pill is a tactic utilized by companies to prevent or discourage hostile takeovers. The main reason is that the states where american companies are organized freely allow companies to adopt takeover defenses, like a poison pill. Jun 08, 2016 hostile takeover defenses poison pill the business professor. Companies use poison pills as a takeover defense tool. It allowed teams to protect 37 players and allow others to be free. Browse the amazon editors picks for the best books of 2019, featuring our. A typical poison pill gives all shareholders other than the unwelcome acquiror or hostile bidder the right to buy additional stock, either in their own company or the acquiror, at a substantial discount. Use such antitakeover defenses as stock repurchase, poison pill, staggered. The term poison pill generically refers to various defensive measures adopted by boards of directors in response to takeover. Such defenses are meant to make hostile takeovers prohibitively expensive for unwanted suitors. The poison pill device contains the strategies needed to avoid hostile takeovers by utilizing shareholders rights plans, or poison pills. A poison pill is a mechanism that triggers a new class of securities to be issued by a company to its shareholders, explains donald depamphilis in his book mergers and acquisitions basics. Although poison pills provide a number of benefits to corporations and investors, they can also be risky. Poison pill is a psychologybased defensive technique where the minority shareholders are protected from an unprecedented takeover or a hostile management change by using techniques to increase the cost of acquisition to a very high level and create disincentives if a takeover or management changes happen to alter the decision makers mind.
Two law professors argue that the ubiquitous poison pill used to defend against hostile takeovers is vulnerable to being challenged as unconstitutional. Poison pill defense kept alive in eu may 19, 2006 brussels the european union is set to enact a lessrestrictive law that would leave in place poison pills and other defenses against. Amps use of a restrictive poison pill plan and defensive repurchase prior to. A shareholder rights plan, also known as a poison pill, is one of the most effective defense tactics available to publicly traded corporations. We provide a comprehensive policy and doctrinal analysis of the use of poison pills again activists in corporate governance contests.
The tech giants defensive measures against a possible takeover bid could trap its own investors. Poison pill defense bodes ill for shareholders, sec study says by peter behr. Poison pill defense bodes ill for shareholders, sec. Netflix uses poison pill to prevent hostile takeover. Each poison pill has its own terms and conditions but is often triggered when a shareholder accumulates 15% of shares outstanding. The poison pill, one of the most popular corporatetakeover defenses of the past two decades, is getting tougher to swallow. Papa johns adopts poison pill defense against john. Poison pill defense bodes ill for shareholders, sec study says. Adopting a poison pill in response to shareholder activism. Glossarypoison pillalso known as a shareholder rights plan, a poison pill is a defensive measure used by public companies to defend against hostile takeover attempts by third parties. The poison pill strategy which has been used by, among others, avis, netflix and sothebys, and in a battle between mens wearhouse and jos. The term poison pill usually refers to the defense a company establishes when a takeover is threatened. There is a double meaning here as the drug company set up for takeover is forced to recall all of their most popular medication when it causes several deaths. The poison pill takeover defense, adopted by corporate directors to boost their companys price tag in a hostile takeover battle, tends to be poison for the companys shareholders as well as for.
Jul 23, 2018 papa johns is preparing for a fight against john schnatter, the pizza chains founder and former chairman, by adopting a socalled poison pill defense to protect itself against a hostile. Is hps poison pill defense against xerox toxic for investors. The poison pill is a common strategy used by companies in response to icahn. Oct 19, 2012 webmd has fortified its takeover defenses, as the beleaguered online health information provider continues to struggle with a falling stock price and profits. Institutional shareholders services iss puts the number at over 3000. Pdf hostile takeover defenses that maximize shareholder wealth. They make it more difficult and expensive for an acquirer to gain control of a company. Additionally, it is the new team making the poison pill, not the player executing the poison pill. Using shareholder rights plans poison pills to fight takeovers. The poison pill technique, sometimes also known as a shareholder rights plan, is a form of defense against a potential hostile takeover takeover bid a takeover bid refers to the purchase of a company the target by another company the acquirer. The caselaw in the us is full of cases where the poison pill was accepted by the courts as a business practice especially when there were reasonable grounds to justify its use such as the goal of furthering the companys midterm development and expansion plans, or the criterion of proper motives and intentions.
On the use of poison pills and defensive payouts by. The premise of a poison pills deterrent effect is the intolerable dilution and economic loss that the pill is meant to inflict on an acquiring person who triggers the pill. Hostile takeover of safeway could be in the offing with activist hedge fund jana partners taking a 6. However, repellent characters, amateurish writing and a loss of focus on the main action make for a missed opportunity. A poison pill is a defense strategy in which the target com.
Rights plans deter unauthorized stock accumulations by imposing substantial dilution upon any shareholder who acquires. Hostile takeover defense poison pill the business professor. As the era of hostile takeovers ended, a legal equilibrium settled around validating gardenvariety poison pills that were not complete practical barriers to the market for corporate control. Corporate takeover defenses have long been a focal point of academic and.
The other poison pills are just flat out obvious, you cannot play for this specific team poison pills, this doesnt really seem like a poison pill. Poison debt is a sister of poison pill and can be defined as. Webmd extends its poison pill defense the new york times. A defensive strategy based on issuing special stock that is used to deter aggressors in corporate takeover attempts.
On wednesday, icahn disclosed that he had amassed control of. Two decades of research on poison pills and other takeover defenses does not support the belief common among legal academics that defenses reduce firm value. What you need to know about hostile takeovers under shareholder pressure to increase returns, companies are finding themselves on both sides of. Ethical conflicts in the recommendation of poison pills. Her exs game traps her in a web of secrets locked within secrets. Poison pill a shareholder rights plan to prevent hostile. A shareholder rights plan, colloquially known as a poison pill, is a type of defensive tactic.
The poison pill is a mechanical device that is designed to operate in response. This may confront firms with ethical conflicts of interests. Poison pills, midnight strolling and unwanted qbs turned hall of famers. Corporate governance nasty medicine business the economist. Popularly known as corporate raiding, takeovers are hostile mergers intended to acquire a corporation. The pills can be flipin, flipover, dead hand, and slowno hand. 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 targets shares.
It is seeking to avert a lessthanfriendly takeover by its former boss, dov charney, whom the board had. Use features like bookmarks, note taking and highlighting while reading poison pill. Currently, the most common type of takeover defense is a shareholder rights plan. A download it once and read it on your kindle device, pc, phones or tablets. Plan b free agency from 1989 to 1991, the nfl came up with a bizarre form of free agency in an attempt to soothe players. Pride the poison pill king nebuchadnezzar had no peers. In legislative debate, a wrecking amendment also called a poison pill amendment or killer amendment is an amendment made by a legislator who disagrees with the principles of a bill and who seeks to make it useless by moving amendments to either make the bill malformed and nonsensical, or to severely change its intent rather than directly.
Once activated, cumulus poison pill would award shareholders with incremental shares of stock or give them the option to buy shares at a significant discount if the company becomes a takeover target. A poison pill is designed to make the transaction being pursued by a hostile bidder extremely unattractive from an economic perspective, compelling the bidder to negotiate with the targets board of. Either action would effectively dilute the acquirers position to 50% or less of what theyve acquired. All of the court opinions, statutes, books, articles, and other materials. Holders of the rights can buy stk in the target firm at half price and simultaneously, the rights owned by the raider the acquirer are voided. A poison pill is a hostile takeover prevention strategy used to make the target companys stock look less desirable.
The poison pill device 2011 edition securities law handbook series on. English and us law on takeover defences law teacher. Faced with opposition from activist shareholders and new pressures to. On the use of poison pills and defensive payouts by takeover. There are typically two types of poison pills as noted below. The company said on friday that it had extended a shareholder rights plan, informally known as a poison pill, for two additional years.
The poison pill is a defensive strategy used against corporate takeovers. The architect of the antitakeover defense, martin lipton, explained to the deal why he. On the use of poison pills and defensive payouts by takeover targets i. Elan finds creative poison pill to defend against a. Poison pill is sometimes used more broadly to describe other types of takeover defenses that involve the target taking some action. Hostile takeovers abound, but success is no guarantee the new. Cumulus poison pill takeover defense would keep buyers. Webmd has fortified its takeover defenses, as the beleaguered online health information provider continues to struggle with a falling stock price and profits the company said on friday that it had extended a shareholder rights plan, informally known as a poison pill, for two additional years. 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.
It provides the mechanics, procedures, and key drafting language, plus realworld examples to illustrate the ins and outs of this strategy. The proliferation of corporate mergers and acquisitions has spawned. 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. Here is the description of the two poison pills from thenespn reporter. Hostile takeover defenses poison pill the business professor.
A poison pill is a common defensive tactic used by target companies. Cumulus poison pill takeover defense would keep buyers at. Disadvantages of the poison pill although poison pills provide a number of benefits to corporations and investors, they can also be risky. The poison pill device 2011 edition securities law handbook series. The poison pill is one of the most powerful defenses against hostile takeovers. To avoid setting off the poison pill, a hostile bidder had to replace a majority of the targets board. In flipin plans, the shareholder can force the corporation to repurchase the preferred shares at a premium. Babylon, his city, rose out of the desert plains like a. Cumulus held its annual shareholder meeting may 18, the third of three shareholder meetings in the last eight months. As the many hostile takeover deals out there show, though, sometimes.
He was the uncontested ruler of the world of the 6 th century b. Poison pill has the bones of a good corporate takeover potboiler, an underexplored genre. Although the broad category of takeover defenses more commonly known as shark repellents includes the traditional shareholder rights plan poison pill. Jason mance gordon, hostile takeover defense poison pill, in the business professor, updated january, 2015, last accessed april. The purchase rights are typically triggered when a person announces the. The flipover plan allows the preferred shareholder to convert or purchase common shares at a very low cost. Other arguments favouring the use of the poison pill are also the controversial poison pill takeover defense. A poison pill is designed to make the transaction being pursued by a hostile bidder extremely unattractive from an economic perspective, compelling the bidder to negotiate with the targets board of directors. In effect, it is an agreement adopted by a companys. A hot and heavy debate about poison pill tactics raged in congress in 1987, and it continues today in state legislatures.
Using shareholder rights plans poison pills to fight. Both of these provisions cost the acquirer lots of money. In a typical flip in, the dilution results from the targets issuance, at a 50% discount to the current market price, of new shares to all stock. While most articles and books view such events from the perspective of. Analyzing various hostile takeover defenses, the article emphasizes the.
Also, poison pills tend to be adopted by managements with small ownership positions. Types of preferred share issuances include flipover plans and flipin plans. But prior studies suffer from serious, previously unrecognized design flaws. Recent poison pill developments and trends introduction shareholder rights plans were developed more than 30 years ago to fend off opportunistic hostile offers and other abusive takeover transactions. But other experts argue that poison pill defenses can protect a company and its shareholders from being swept up. A company targeted for a takeover uses a poison pill strategy to make shares of the. There is a lesson here the defenses a company adopts when it goes. Well i dont have a formal background in this field so i dont have much interesting stories to share that professors usually discuss in class as case studies. Is hps poison pill defense against xerox toxic for. The poison pill clause comes after the cumulus board on friday made changes to its bylaws that prohibit a special stockholders meeting from taking place within 180 days after the annual meeting. Of the 140 companies that adopted new rights plans in the first six months of. But ireland, like britain, takes a different approach.
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