Poison Pill
A strategy used by corporations to discourage a hostile takeover by another company. The target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills:
1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount.
2. The "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger. Investopedia Says:
1. By purchasing more shares cheaply (flip-in), investors get instant profits and, more importantly, they dilute the shares held by the competitors. As a result, the competitor's takeover attempt is made more difficult and expensive.
2. An example of a flip-over is when shareholders have the right to purchase stock of the acquirer on a 2-for-1 basis in any subsequent merger.
This is similar to the macaroni defense, except it uses equity rather than bonds. Related Terms:
Bankmail
Blank Check Preferred
Greenmail
Lady Macbeth Strategy
Lobster Trap
Macaroni Defense
Pac Man
Participating Preferred Stock
People Pill
Scorched Earth Policy
Share Purchase Right
Shark Repellent
Suicide Pill |