1. Poison pills
Poison pills, first introduced in the mid -1980s, are the most effective takeover defense and thus warrant the most discussion. Poison pills are rights or securities that a firm issues to its shareholders, giving them valuable benefits in the event that a significant number of its shares are acquired. There are many varieties of poison pills, but all share the basic attribute that they involve a transfer from a bidder to shareholders who do not tender their shares, thereby increasing the cost of the acquasition and decreasing the incentives for target shareholders to tender at any given price.
The name poison pills comes from the world of espionage. Once caught, a spy is supposed to take his own life by swallowing a poison pill rather than give up important secrets. Poison pills are very effective in stopping takeovers, but where is the suicide analogy? The answer is that by adopting a poison pills, a company effectively entrenches its management by making it much more difficult …show more content…
Therefore, because a poison pill increases the cost of a takeover, all else being equal, a target company must be in worse shape ( there must be a greater opportunity for profit ) to justify the expense of waging a takeover battle.
Poison pills also increase the bargaining power of the target firm when negotiating with the acquirer because they make it difficult to complete the takeover without the cooperation of the target board. If used effectively, this bargaining power can allow target shareholders to capture more of the takeover gains by negotiating a higher premium than they would get if no pill existed. Numerous studies on the impact of antitakeover provisions on takeovers have found that such provisions result in higher premium accruing to existing shareholders of the target
Poison pills, first introduced in the mid -1980s, are the most effective takeover defense and thus warrant the most discussion. Poison pills are rights or securities that a firm issues to its shareholders, giving them valuable benefits in the event that a significant number of its shares are acquired. There are many varieties of poison pills, but all share the basic attribute that they involve a transfer from a bidder to shareholders who do not tender their shares, thereby increasing the cost of the acquasition and decreasing the incentives for target shareholders to tender at any given price.
The name poison pills comes from the world of espionage. Once caught, a spy is supposed to take his own life by swallowing a poison pill rather than give up important secrets. Poison pills are very effective in stopping takeovers, but where is the suicide analogy? The answer is that by adopting a poison pills, a company effectively entrenches its management by making it much more difficult …show more content…
Therefore, because a poison pill increases the cost of a takeover, all else being equal, a target company must be in worse shape ( there must be a greater opportunity for profit ) to justify the expense of waging a takeover battle.
Poison pills also increase the bargaining power of the target firm when negotiating with the acquirer because they make it difficult to complete the takeover without the cooperation of the target board. If used effectively, this bargaining power can allow target shareholders to capture more of the takeover gains by negotiating a higher premium than they would get if no pill existed. Numerous studies on the impact of antitakeover provisions on takeovers have found that such provisions result in higher premium accruing to existing shareholders of the target