Poison pills a strategy used by corporations to discourage hostile takeovers. Poison pill aka shareholder rights plan is a distribution to. Anti takeover tactics include greenmail, golden parachutes, and poison pills. But her dream becomes a nightmare when a wall street raider threatens a hostile takeover. Shareholders will receive one preferred stock purchase right as a dividend for each common share held as of the close of business feb. All of the court opinions, statutes, books, articles, and other materials. Popularly known as corporate raiding, takeovers are hostile mergers intended to acquire a corporation. A poison pill is a defense tactic utilized by a target company to prevent, or discourage, attempts of a hostile takeover by an acquirer. Lessons from the first triggering of a modern poison pill. Click download or read online button to get antitakeover defensive tactics book now. It is a form of acquisition of a company rather than a merger.
Adopting a poison pill in response to shareholder activism. Poison pills exist as an anti takeover strategy and commonly come into play when a company is struggling and vulnerable. A poison pill is a tactic utilized by companies to prevent or discourage hostile takeovers. Although the original poison pills were used as anti takeover defenses, delaware.
A poison pill is a common defensive tactic used by target companies to discourage an acquirer from their hostile takeover attempts. The purpose of this chapter is to discuss the commonly used tactics to acquire a company in a hostile takeover attempt and to evaluate the effectiveness of various takeover defenses in the context of corporate governance. Poison pill ultimate weapon against hostile takeovers. Measures taken on a continual or sporadic basis by a firms management in order to prevent or deter unwanted takeovers. Poison pills as an antitakeover device poison pills were developed in the 1980s as an antitakeover device. Poison pill has the bones of a good corporate takeover potboiler, an underexplored genre. A poison pill is a common defensive tactic used by target companies to. However, repellent characters, amateurish writing and a loss of focus on the main action make for a missed opportunity. 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. A defensive strategy based on issuing special stock that is used to deter aggressors in corporate takeover attempts. Poison pill rights to preferred stock issued to shareholders. France once barred its companies from using anti takeover defenses, known in europe as frustrating actions, to stop hostile bidders. Named after the cyanide pill that secret government agents are said to be instructed to swallow if capture is imminent.
Poison pills definition, example top 6 types with reasons. Takeovers, generally mean a company taking over the management of another company. With a poison pill, the target company attempts to make its stock less attractive to the acquirer. In an ideal world, if the board feels that accepting the offer serves the shareholders better than rejecting it, it recommends the offer be accepted by the shareholders. A typically successful defensive strategy in preventing a hostile takeover is something referred to as a shareholder rights plan. With a poison pill, the board can block that attempt, and insist on a 25 percent premium. Antiactivist poison pills by marcel kahan, edward b. Poison pill is a companys ultimate defensive against hostile takeovers, corporate raiders.
Rights can be exercised after a tender offer or the accumulation of a large block of shares by an outside party. 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. The validity of poison pills received a big boost when the delaware supreme court upheld a flipover pill in moran v. A company targeted for a takeover uses a poison pill strategy to make shares of the.
Defence tactics discourage parties involved due to delays and uncertainty and thus help to suppress the competitive bids from various bidders. Sothebys is simply trying to apply the old law that clearly allows the company to adopt a poison pill, arguing that shareholder activism is a sufficient threat to justify the pill. Poison pill by glenn kaplan meet your next favorite book. Merger and acquisition transactions depend a lot on the approval of a target company. The plan includes whats known as a poison pill which would automatically be triggered if someone buys more than 4. 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. Poison pills will frequently increase the cost of the takeover beyond what the acquirer is willing or able to pay.
The triggering of selecticas poison pill offers several important lessons for all rights plans. Poison pills relevance in the age of shareholder activism. Established as a mechanism in 1982, the shareholder rights plan is often more pleasantly referred to as the poison pill. They aid by utilizing various anti takeover strategies, thereby making the target company economically unattractive and acquisition more costly. Are defensive board tactics, such as shareholders rights poison pill plans, good for.
While most articles and books view such events from the perspective of. In their most successful application, a poison pill strategy can defeat potential takeovers completely. Practically, the acquirer must buy at least 51% or more paid up equity of the acquired company to enjoy full control over its operations. Analysis of the validity of the poison pill variations as. This phrase poison pill strategy is the common mans expression for a particularly set up shareholder rights plan. While takeover defenses may lower the probability of being acquired, they may also increase the offer price. 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. Among the colorfully named takeover defenses that developed are. On the use of poison pills and defensive payouts by takeover targets i. Although poison pills provide a number of benefits to corporations and investors, they can also be risky. In response, boards have adopted a variety of defensive measures including deploying poison pill shareholder rights plans against activists. The poison pill is a defensive strategy used against corporate takeovers. Nols on the books of a potential target company, it will take a significant amount of.
This site is like a library, use search box in the widget to get ebook that you want. When a hostile takeover wave seemed imminent in japan in the mid2000s. In addition to state takeover legislation, the takeover environment of the 1980s spurred the development of a host of new anti takeover defenses to fend off hostile bidders. 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. Japans unique interpretation of the poison pill that was so eagerly adopted. The target companys management team threatens that, in the event of a takeover, the entire team will resign.
On the use of poison pills and defensive payouts by takeover. Using shareholder rights plans poison pills to fight. 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. All data presented in the case about arcelor and mittal are collected from the book.
Defensive antitakeover board measures cfa institute. In flip in plans exercised rights are repurchased by the issuing firm at. Before a bidder makes an offer for another company, it usually first informs the companys board of directors. These tactics can erode shareholder value, especially for existing shareholders, by either making a large payment to a potential acquirer greenmail, making a large payment to executives golden parachutes, or reducing share price through dilution poison pills. Takeovers are always a reality in the competing world of business.
Use such antitakeover defenses as stock repurchase, poison pill. For example, consider a defense that allows incumbent. Antitakeover tactics include all of the following except. Furthermore, takeover defenses can affect the value of the firm even if it is not acquired, that is, the value with its incumbent management team. 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. 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. 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. Although pills have been in common use as anti takeover devices since the 1980s, it is only nowin the context of anti activist pillsthat many design features of pills start to matter. These unique defensive strategies that a companys board of directors creates make hostile takeover parties pause for thought.
The greenmail is the anti takeover tactic undertaken when the target firm buys back its own shares at an inflated price from the unfriendly firm which possesses a large stock of the target company and is threatening a hostile takeover. An nol poison pill is different from a traditional poison pill, which protects against abusive takeover transactions, and nol poison pills may become increasingly relevant due to the impact of the recession. Poison pill anti takeover 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. Sothebys has stated that it adopted the poison pill to protect stockholders from coercive or otherwise unfair takeover tactics. A shareholders rights plan is an example of a poison pill that gives existing shareholders the. Common takeover tactics, takeover defenses, and corporate governance.
The poison pill device contains the strategies needed to avoid hostile takeovers by utilizing shareholders rights plans, or poison pills. France answers hostile bids with the twovote share the. Analysis of the validity of the poison pill variations as anti takeover tactics. Antitakeover defensive tactics download ebook pdf, epub. In a poison pill defense, existing company shareholders have the right to purchase. Staggered board is a board in which only a certain number of directors. Poison pills it derives from its original meaning of a literal poison pill carried by various spies throughout history, taken when discovered to eliminate the possibility of being interrogated for the.
On the use of poison pills and defensive payouts by. It is true that for completed takeovers, poison pill company shareholders enjoy a larger increase from the initial offer than at non poison pill companies. It is not rare to find companies merging together with each others consent. A defensive strategy to ward off a hostile takeover. Their tactics include buying shares, conducting public campaigns, lobbying managers and other shareholders, seeking representation on the board of directors, and sometimes running a proxy contest.
Browse the amazon editors picks for the best books of 2019, featuring our. Cumulus poison pill takeover defense would keep buyers. Poison pills as an anti takeover device poison pills were developed in the 1980s as an anti takeover device. Golden parachute understand how golden parachutes work. In flipover plans exercised rights can be used to purchase stock in the bidder on favorable terms.
Takeovers definition, types friendly, hostile, reverse. Indeed, the creativity of deal lawyers and bankers has added such terms as poison pill, shark. Stock repurchase aka selftender offer is a purchase by the target. But last year, with the takeover market heating up and. It provides the mechanics, procedures, and key drafting language, plus realworld examples to illustrate the ins and outs of this strategy. Pay given to executives fired because of a takeover. The poison pill antitakeover defense question, but empirical testing cannot measure the loss of opportunity that might result from driving away potential bidders. Gilson, delawares intermediate standard for defensive tactics.
A friendly takeover is an acquisition which is approved by the management of the target company. We provide a comprehensive policy and doctrinal analysis of the use of poison pills again activists in corporate governance contests. The architect of the anti takeover defense, martin lipton, explained to the deal why he. However, despite being one of the most effective anti takeover devices of recent times, we are witnessing an increase in shareholders activism against poison pills and increasing trend by large companies to shed their poison pills, and increasing trend by smaller companies to adopt the practice.
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