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. With the threat of the 1980sera hostile bidder behind us, a new threat to board authority has emerged. In effect, it is an agreement adopted by a companys. This pdf is a selection from an outofprint volume from the national bureau. There are typically two types of poison pills as noted below. Using shareholder rights plans poison pills to fight. When adopting a poison pill in response to shareholder activism, in particular, the institutional investor community, prompted by the proxy advisory firms, could misconstrue the pill as a boards attempt to insulate itself from a shareholder vote. Confronting a potential hostile takeover, the grocery chain announced tuesday, sept. Importantly, the combination of staggered board and preexisting poison pill shows even stronger protection than the staggered board alone. 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. Poison pill by glenn kaplan meet your next favorite book.
Shareholders will receive one preferred stock purchase right as a dividend for each common share held as of the close of business feb. Pdf hostile takeover defenses that maximize shareholder wealth. Such plans allow existing shareholders the right to purchase additional shares at a discount, effectively diluting the ownership interest of any new, hostile party. Mylan, a nasdaqquoted dutch public limited liability company or, dutch n. A hostile takeover is the acquisition of one organization by another. An example would be a clause in the shareholder agreement that says. Hostile takeover learn about hostile takeover strategies. Antitakeover amendments are also aimed at dissuading hostile takeovers, but.
It is a form of acquisition of a company rather than a merger. The poison pill is one of the most powerful defenses against hostile takeovers. Hopt zum 70 geburtstag am 24 august 2010 festschrift for klaus j. The effects of antitakeover provisions on acquisition targets. Takeover bid a takeover bid refers to the purchase of a company the target by another company the acquirer.
Informal a strategy intended to make a hostile takeover of a corporation more difficult, as by granting of special rights to existing shareholders upon the occurrence of the purchase of a significant amount of stock by an intended acquirer. Poison pill strategy comprises actions as incurring high debts with high rate of. Hostile takeovers the use of attack and defence strategies. Nonexistent hostile takeover market, and the socalled pill. Poison pills a strategy used by corporations to discourage hostile takeovers. The pills can be flipin, flipover, dead hand, and slowno hand. This video explains what is a poison pill hostile takeover defense. 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 pill a shareholder rights plan to prevent hostile. After gaining an insight into the concept of hostile takeovers, lets look at an example to have a clearer view of the same. Dec 30, 20 netflix terminates poison pill plan, which was designed to ward off hostile takeover billionaire carl icahn sold half his stake in netflix in october, now holding 4.
Poisonpill definition of poisonpill by the free dictionary. A poison pill is a defense strategy in which the target com. Battle between xerox, hp ramps up with hp poison pill. Instead, shareholders seem to value the protection against hostile offers or. When a hostile takeover wave seemed imminent in japan in the mid2000s. With a takeover bid, the acquirer typically offers cash, stock, or a mix of both, bidding a. The validity of a poison pill means that, in the hostile takeover context, a decision by a majority of shareholders to tender into a noncoercive bid is not sufficient to permit the bid to go forward, but requires that the bidder win a proxy contest for control, a potentially more deliberative process than a. Poison pills relevance in the age of shareholder activism. Rise of the aggressive poison pill insights dla piper. Jun 08, 2016 hostile takeover defense poison pill what is a poison pill hostile takeover defense. On the use of poison pills and defensive payouts by takeover. Man agers resist takeovers for three broad reasons.
In a hostile takeover, the target companys management does not wish the takeover to go through. In their most successful application, a poison pill strategy can defeat potential takeovers completely. This phrase poison pill strategy is the common mans expression for a particularly set up shareholder rights plan. Using shareholder rights plans poison pills to fight takeovers. A hostile takeover allows a bidder to take over a target company whose management is unwilling to agree to a merger or takeover. 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. Dec 01, 2015 the dutch poison pill received this extraordinary attention because of its use by mylan n. Consistent with recent theory, staggered boardpoison pill combination is the. A typically successful defensive strategy in preventing a hostile takeover is something referred to as a shareholder rights plan.
Poison pill definition of poison pill by merriamwebster. The poison pill antitakeover defense question, but empirical testing cannot measure the loss of opportunity that might result from driving away potential bidders. Considerations when adopting a poison pill in response to shareholder activism as we have discussed, the investor has just filed a schedule d with the securities and exchange commission disclosing equity holdings in the company equal to 8. One of the classic examples of a hostile takeover is the takeover of time warner by aol in the year 2000. 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. Netflix uses poison pill to prevent hostile takeover. What effect do poison pills have on shareholder value. All data presented in the case about arcelor and mittal are collected from the book. These unique defensive strategies that a companys board of directors creates make hostile takeover parties pause for thought. In a poison pill defense, existing company shareholders have the right to purchase.
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. The nol poison pill, while facially plausible as a tool to protect tax assets from impairment, may be a stepping stone to a lowtrigger anti shareholder pill. Pdf hostile takeover defenses that maximize shareholder. It is difficult to determine it priori whether takeover defenses are good or bad for stockholders. Netflix is making moves to prevent a hostile takeover from billionaire carl icahn, who disclosed a nearly 10 percent stake in the company. Lessons from the first triggering of a modern poison pill. Nols on the books of a potential target company, it will take a significant amount of. Takeovers definition, types friendly, hostile, reverse.
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. But the poisonpill defense is not without weaknesses. Poison pill definition is a financial tactic or provision used by a company to make an unwanted takeover prohibitively expensive or less desirable. Adopting a poison pill in response to shareholder activism. The poison pill anti takeover defense question, but empirical testing cannot measure the loss of opportunity that might result from driving away potential bidders. A poison pill is a hostile takeover prevention strategy used to make the target companys stock look less desirable. Poison pill rights to preferred stock issued to shareholders. Oct 14, 2016 conclusion however, a poison pill either to oppress a minority shareholder or to minimize the impact of activist shareholders, seems to exceed the maximum dosage of the pill. 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. Highlights versata enterprises triggered selecticas poison pill in december 2008, becoming the first stockholder to have intentionally swallowed a modern poison pill. Although poison pills provide a number of benefits to corporations and investors, they can also be risky. But one way to assess a take over defense is to examine the rationale for resistance. The evolution of hostile takeover regimes in developed and. Conclusion however, a poison pill either to oppress a minority shareholder or to minimize the impact of activist shareholders, seems to exceed the maximum dosage of the pill.
Netflix terminates poison pill plan, which was designed to. Apr 18, 2014 sothebys has stated that it adopted the poison pill to protect stockholders from coercive or otherwise unfair takeover tactics. The dutch poison pill received this extraordinary attention because of its use by mylan n. Established as a mechanism in 1982, the shareholder rights plan is often more pleasantly referred to as the poison pill.
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. Merger and acquisition transactions depend a lot on the approval of a target company. Hml stands for the difference of companies with high book to. However, repellent characters, amateurish writing and a loss of focus on the main action make for a missed opportunity. Sanofiaventiss hostile takeover of the biotechnology company, genzyme. Stockholder rights plans allow the target board of directors time and leverage to negotiate for a control premium or other alternatives to hostile bids. Netflix terminates poison pill plan, which was designed to ward off hostile takeover billionaire carl icahn sold half his stake in netflix in october, now holding 4. Selecticas nol poison pill was designed to protect its nol. This suggests that the prebid poison pill, combined with the staggered board, sends a strong signal that the firm is ready to resist the takeover, which is consistent with bebchuk and cohens 2005. Though the original poison pills were blessed by the delaware courts to ward off hostile bidders, now boards can use a hostile poison pill to ward off noisy shareholders. The general purpose of a shareholder rights plan or poison pill is to deter and mitigate the time pressures of nonnegotiated, hostile takeover attempts made at unfair or inadequate prices, or by coercive or unfair tactics.
A takeover is considered hostile if the target companys board rejects the offer, and if the bidder continues to pursue it, or the bidder makes the offer directly after having announced its firm intention to make an offer. United kingdom, and japanhostile takeovers emerged under a common set of circumstances. The poison pill technique, sometimes also known as a shareholder rights plan, is a form of defense against a potential hostile takeover. Airgas inc deterred the hostile takeover through the use of a poison pill. Poison pill has the bones of a good corporatetakeover potboiler, an underexplored genre. But peoplesofts poison pill was set to trigger if oracle bought more than 20 percent of the company. Netflix terminates poison pill plan, which was designed. Hostile takeover defenses that maximize shareholder wealth article pdf available in business horizons 475. Bruners solution is to simulate the potential gain from restructuring and compare it with the potential loss that the poison pill may occasion. But her dream becomes a nightmare when a wall street raider threatens a hostile takeover.
Hostile takeover takes place by approaching a companys shareholders directly or fighting to substitute the management and get the acquisition approved. 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. Liquidity is the ratio of net liquid assets to total assets, d. Sothebys has stated that it adopted the poison pill to protect stockholders from coercive or otherwise unfair takeover tactics. Sep 18, 20 confronting a potential hostile takeover, the grocery chain announced tuesday, sept. A poison pill is a tactic utilized by companies to prevent or discourage hostile takeovers. These provisions have the objective of raising the cost of acquisition to the acquirer in.
The date of the poison pills adoption relative to the date of the next meeting of shareholders i. Poison pill this type of defense is designed to make the target company less attractive or desirable to the acquiring company. A hostile takeover occurs when one business acquires control over a public company against the consent of existing management or its board of directors. Boards also favor poison pills for the leverage they bring to the bargaining table. While analysing the literature it seems confusing and complicated because different terminologies are used for the same strategy and the same. 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. A company targeted for a takeover uses a poison pill strategy to make shares of the. Importantly, the combination of staggered board and preexisting poison pill shows even. However, corporate takeovers can sometimes become hostile. Worse, the raider is no ordinary cutthroat but her exhusband josh katz, father of their teenage son. A hostile takeover is the acquisition of one company called the target company by another called the acquirer that is accomplished by going directly to the companys. It is not rare to find companies merging together with each others consent. 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.