A poison pill is a form of defense tactic utilized by a target company to prevent or discourage attempts of a hostile takeover by an acquirer. Hostile takeover meaning examples defense strategies. Poison pill plan as distributions of stock dividends. Antitakeover defensive tactics download ebook pdf, epub. Click download or read online button to get antitakeover defensive tactics book now. Mergers, acquisitions, and corporate restructurings, by patrick a. Apr 18, 2014 sothebys has stated that it adopted the poison pill to protect stockholders from coercive or otherwise unfair takeover tactics. 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.
These provisions have the objective of raising the cost of acquisition to the acquirer in hopes of making the acquisition prohibitively expensive. Hostile takeover examples, tactics hostile takeover. Also, poison pills tend to be adopted by managements with small ownership positions. Foundations of dutch discount and dutch poison pills explained in new book. In response, boards of directors have adopted a variety of defensive measures including deploying the poison pill shareholder rights plan against activists. At the same time, when a threat arises, a shelf pill can be put into action within 24 hours. Poison pills as an anti takeover device poison pills were developed in the 1980s as an anti takeover device. Takeovers, generally mean a company taking over the management of another company. There are a number of anti takeover defences that are applied by the target companies for averting the acquirers or bidders.
These measures are so named because any unwanted takeover attempt i. Prior to 1984, when hostile takeover just jutted their ugly head, preferred stock plans were primarily used as poison pills. Practically, the acquirer must buy at least 51% or more paid up equity of the acquired company to enjoy full control over its operations. A shelf pill does not inspire the same market censure that accompanies a longterm pill. What are the best takeoverpoison pillswhite knight stories. Poison pills shareholder rights plans classified boards staggered boards. 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. We provide a comprehensive policy and doctrinal analysis of the use of poison pills again activists in corporate governance contests. Poison pills the term poison pill is defined as corporate provision or strategy, that is used by a company to protect itself from a hostile takeover bid.
Takeovers definition, types friendly, hostile, reverse. Section 203 delays a hostile takeover by three years unless the bidder buys. The term poison pill describes a family of shareholder rights that are triggered by an event such as a hostile tender offer or the accumulation of voting stock above a designated threshold usually 15 percent of outstanding. 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. There are typically two types of poison pills as noted below. They aid by utilizing various antitakeover strategies, thereby making the target company economically unattractive and acquisition more costly.
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. Boards and advisors would be welladvised to not lose sight of some of the trees described above while they focus on the more lofty forest of the wisdom and risks of adopting a poison pill. A company targeted for a takeover uses a poison pill strategy to make shares of the. The hostile poison pill of scrutiny, courts, particularly delaware state courts,12 have not policed these prostatus quo decisions with a vengeance. One of the ways a company can protect itself from a hostile takeover bid is by adopting a poison pill defense. In effect, it is an agreement adopted by a companys. A defensive tactic enacted by a companys board of directors, poison pills, at least, cause an aggressive takeover plot to be rethought. In flipover plans exercised rights can be used to purchase stock in the bidder on favorable terms. The poison pill device 2011 edition securities law handbook series on. This is specifically seen in the united states that carries an extensive and diverse history of takeovers. Use features like bookmarks, note taking and highlighting while reading poison pill. 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.
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. Indeed, the creativity of deal lawyers and bankers has added such terms as poison pill, shark repellent, pacman defense and white squire to the. The plan, also known as a poison pill, can prevent investors from acquiring a company via board takeover or other hostile tactics. The untold story of the vioxx drug scandal i couldnt put this book down. Merger and acquisition transactions depend a lot on the approval of a target company. As often is the case in hostile acquisitions, the acquiring company will employ abusive takeover tactics, or use its dominant position to put the target company in a very bad position. Rights plans deter unauthorized stock accumulations by imposing substantial dilution upon any shareholder who acquires. Anti takeover amendments poison pills poison puts parachutes.
Analysis of the validity of the poison pill variations as. Mergers, acquisitions, and takeovers have been a part of the business world for centuries. The classic antiraider tactic, the poison pill, is disappearing from companies. Apr 12, 2007 a provision made by a company to deter takeover bids the tactic works by making sure a successful bid triggers some event which substantially reduces the value of the company. A poison put is a type of poison pill provision designed to increase the cost a company will incur to acquire a target company. A poison pill is a hostile takeover prevention strategy used to make the target companys stock look less desirable. Proxy advisory firms, such as institutional shareholder services inc. Poison pills relevance in the age of shareholder activism. Poison pill an anti takeover plan devised to automatically be activated when the company gets bought over in an unfriendly takeover. A plan whereby all the firms debt becomes due if the current management is removed. This site is like a library, use search box in the widget to get ebook that you want. A hot and heavy debate about poison pill tactics raged in congress in 1987, and it.
In response, boards have adopted a variety of defensive measures including deploying poison pill shareholder rights plans against activists. In flip in plans exercised rights are repurchased by the issuing firm at. Mar 08, 2017 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. The two modernday defensive weapons that can be showstoppers are the poison pill and the state takeover laws. Browse the amazon editors picks for the best books of 2019, featuring our favorite reads in more than a dozen categories. 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. 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. Reliable information about the coronavirus covid19 is available from the world health organization current situation, international travel. Mar 22, 2017 the authors of antiactivist poison pills do us a service by focusing attention on the fundamental legal issues in adopting a poison pill. On the use of poison pills and defensive payouts by takeover targets i. Antiactivist poison pills by marcel kahan, edward b. Another example, a poison pill can easily lose its effect if the acquirer wins a proxy fight for the target and then redeems the pill. Takeover defence tactics takeover share repurchase.
Its a right issued to stockholders of a company threatened by takeover, granting them privileges that are contingent on the possession by an aggressor of a stated percentage of their companys stock. The poison pill is a defensive strategy used against corporate takeovers. While most articles and books view such events from the perspective of. It is a form of acquisition of a company rather than a merger. Poison pill is an allencompassing term and there are various forms in which it is triggered in a practical corporate setting. However, repellent characters, amateurish writing and a loss of focus on the main action make for a missed opportunity.
Defensive tactics that make hostile takeover by a corporateraider prohibitively expensive or unattractive. Oclcs webjunction has pulled together information and resources to assist library staff as they consider how to handle coronavirus. The above hostile takeover techniques and defenses show the unlimited scope of power that the board enjoys in its antitakeover activity. A poison put is a takeover defense strategy in which the target company issues a bond that investors can redeem before its maturity date. A shareholders rights plan is an example of a poison pill that gives existing shareholders the opportunity to buy additional company stock at a discounted price. Poison pills the phrase was first used in a business setting by martin lipton, of wachtell. Poison pill a shareholder rights plan to prevent hostile. Analysis of the validity of the poison pill variations as anti takeover tactics. A download it once and read it on your kindle device, pc, phones or tablets. May 05, 2014 parsons said, however, that delaware courts have never judged an antitakeover poison pill under the blasius standard.
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. These strategies could be either proactive, such as the poison pill and staggered. Hostile takeover of safeway could be in the offing with activist hedge fund jana partners taking a 6. On the use of poison pills and defensive payouts by takeover. It is not rare to find companies merging together with each others consent. Netflix uses poison pill to prevent hostile takeover. 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. 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. Poison pill has the bones of a good corporate takeover potboiler, an underexplored genre. I recommend this book to anyone in search of a great and informative read. A defensive strategy based on issuing special stock that is used to deter aggressors in corporate takeover attempts. Poison pill defense bodes ill for shareholders, sec study says. A poison pill is a common defensive tactic used by target companies.
The use of defensive strategies such as poison pills to make an acquisition prohibitively expensive without the cooperation of the board of directors allows corporate management to compel the potential offeror to negotiate with them. What are the tactics that companies use as a defense against hostile takeovers. Nov 05, 2012 netflix is making moves to prevent a hostile takeover from billionaire carl icahn, who disclosed a nearly 10 percent stake in the company. In todays dynamic economic environment, companies are often faced with decisions concerning these. 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. By doing this, the acquirer is not able to gain immediate control over the target company and the poison pill defense measurement help stagger and make the bid more expensive for the bidder. In fact, the only shareholder that the nol poison pill effectively deters is the activist shareholder, suggesting that the use of the poison pill in these cases may be hostile. Takeover defence tactics free download as powerpoint presentation.
Lipton invented the poison pill defence during a takeover battle in texas back in 1982. Foundations of dutch discount and dutch poison pills. It provides the mechanics, procedures, and key drafting language, plus realworld examples. A shareholder rights plan, also known as a poison pill, is one of the most effective defense tactics available to publicly traded corporations. 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. Poison pills will frequently increase the cost of the takeover beyond what the acquirer is willing or able to pay. 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. Shareholder rights plan or poison pill a typically successful defensive strategy in preventing a hostile takeover is something referred to as a shareholder rights plan. Defensive antitakeover board measures cfa institute. Management entrenchment is where companies use anti takeover devices such as poison pills just to preserve the jobs of incumbent managers and. Takeovers are always a reality in the competing world of business. What you need to know about hostile takeovers under shareholder pressure to increase returns, companies are finding themselves on both sides of.
These shark repellent tactics can be both effective in thwarting a takeover and detrimental. Established as a mechanism in 1982, the shareholder rights plan is often more pleasantly referred to as the poison pill. Popularly known as corporate raiding, takeovers are hostile mergers intended to acquire a corporation. No discussion of poison pills is complete without addressing public policy issues. The validity of poison pills received a big boost when the delaware supreme court upheld a flipover pill in moran v. Poison pill tactics may also be employed to soften the blow of a hostile takeover. All of the court opinions, statutes, books, articles, and other materials. All data presented in the case about arcelor and mittal are collected from the book. May 19, 2006 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. Without a shelf pill, the board still has the ability to adopt a poison pill quickly and without the need for a shareholder vote. With a standard poison pill, a companys board of directors passes a resolution that grants existing shareholders the right to receive additional shares of stock. A poison pill is a tactic utilized by companies to prevent or discourage hostile takeovers.
I especially enjoyed the history of the pharmaceutical industry that he weaves into his story. Such plans allow existing shareholders the right to purchase additional shares at a discount, effectively diluting the ownership interest of any new, hostile party. Hostile corporate takeovers and defenses against them have long been of. Penneys amended poison pill still needs to go before investors at the shareholders meeting in may for approval. Mar 01, 2016 however, an nol poison pill necessarily has little or no deterrent effect and no physical effect against any of these actors. With hostile takeovers in the news again, its worth understanding how they work and what tactics targeted companies use to fend off unwanted advances. Breaking down poison pill the term poison pill is the common colloquial expression referring to a specially designed shareholder rights plan.
The poison pill device contains the strategies needed to avoid hostile takeovers by utilizing shareholders rights plans, or poison pills. The poison pill takeover defense, adopted by corporate directors to boost their companys price. 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. Nov 05, 2012 the poison pill kicks in if an investor acquires 10% or more of netflixs shares or 20% in the case of institutional investors like icahn in a deal not backed by the companys board. Numerous and frequentlyupdated resource results are available from this search. A poison pill is a defense tactic utilized by a target company to prevent, or discourage, attempts of a hostile takeover by an acquirer.
A hot and heavy debate about poison pill tactics raged in congress in 1987, and it continues today in state legislatures. Poison pills, golden parachutes, classified boards. Poison pill rights to preferred stock issued to shareholders. Anti takeover defences are also termed as anti takeover tactics. Nesi thoroughly covers the story of the vioxx drug scandal in a refreshingly honest way. Poison pills are rights offerings issued as dividends to shareholders that may be exercised if an unwanted suitor purchases an amount of stock in excess of a predetermined percentage of the firms outstanding shares. Adopting a poison pill in response to shareholder activism. Use such antitakeover defenses as stock repurchase, poison pill, staggered. 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. The poison pill device 2011 edition securities law handbook series. It is also used as a tool for an anti takeover mechanism or poison pill to dissuade any potential merger. Abstracts of selected poison pills, samples of relevant sec filings, poison pill proxy materials, and other materials are included in the work. 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. At most, a poison pill may deter a takeover altogether.
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