Series of possible strategies designed to fend off a hostile takeover. One example is offering discounted shares to current shareholders (but not the potential acquirer) in order to dilute whatever stake the acquirer may hold and increase the cost of an acquisition.
Or issuing special bonds, preferred shares or warrants to shareholders exercisable only in the case of a takeover, making the cost of the acquisition prohibitive.
There are other types of poison pills. A people pill involves the threatened resignation of the whole management team in the event of a successful takeover. A suicide pill is a term for any high-risk poison pill strategy that may discourage a potential acquirer but also place the takeover target under severe financial pressure.
poison pill in the news
In early 2014, the poison pill came under the spotlight. Executives targeted by activists were fighting back and several, including the auction house Sotheby’s and rental car group Hertz, turned to this corporate strategy.
In 2013, Sotheby’s put in place a poison pill to prevent activist investor Daniel Loeb and his Third Point vehicle from raising their stake above 10 per cent. Later on, it launched an aggressive attack against Mr Loeb’s tactics. He is tried to force directors to disclose details of how they came to adopt the poison pill.
Also, Hertz put a poison pill in place as shareholders became increasingly aggressive in questioning its strategy. Ultimately, it announced plans to spin off its rental equipment business and return $1bn to shareholders.
In the same year, Billionaire Carlos Slim’s America Movil withdrew its unsolicited approach to Dutch telecoms company KPN after acknowledging it could not overcome the poison pill created by the trust that controls it. In return, KPN said it will re-establish partnership agreements with America Movil that were torn up amid the acrimony of the hostile bid.