'Poison Pill'

Definition of 'Poison Pill'

A strategy used by corporations to discourage hostile takeovers. With a poison pill, 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. A "flip-over" allow stockholders to buy the acquirer's shares at a discounted price after the merger

1. By purchasing more shares cheaply (flip-in), investors get instant profits and, more importantly, they dilute the shares held by the acquirer. This makes the takeover attempt more difficult and more expensive.

2. An example of a flip-over is when shareholders gain the right to purchase the stock of the acquirer on a two-for-one basis in any subsequent merger

 

[Swaswati Borpuzari]

A "Poison Pill" is a defensive strategy used by corporations to deter hostile takeovers. This tactic, formally known as a "shareholder rights plan," was first introduced in the 1980s and has since become a common tool in the arsenal of corporate boards. Essentially, a poison pill allows existing shareholders to purchase additional shares at a discounted price if an outside party attempts to acquire the company without the board's approval. This sudden influx of new shares dilutes the acquirer's potential ownership stake, making the takeover more expensive and, often, less appealing. There are two main types of poison pills: the "flip-in" and the "flip-over." The flip-in option allows shareholders to buy additional shares of the target company at a discount if a potential acquirer reaches a certain threshold of ownership, typically around 10-20%. The flip-over option, on the other hand, allows shareholders to purchase the acquirer's shares at a discount after the merger has taken place. While poison pills can effectively protect a company from unwanted takeovers, they are not without controversy. Critics argue that they can entrench management and discourage beneficial mergers, potentially harming shareholder value in the long run. Despite these concerns, poison pills remain a popular and effective strategy for companies seeking to maintain their independence in the face of aggressive takeover bids.

 

[Dhruv Bindhani]

Definition of 'Poison Pill'

A strategy used by corporations to discourage hostile takeovers. With a poison pill, 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. A "flip-over" allow stockholders to buy the acquirer's shares at a discounted price after the merger

1. By purchasing more shares cheaply (flip-in), investors get instant profits and, more importantly, they dilute the shares held by the acquirer. This makes the takeover attempt more difficult and more expensive.

2. An example of a flip-over is when shareholders gain the right to purchase the stock of the acquirer on a two-for-one basis in any subsequent merger

 

[Simran Rai]

Great explanation of the poison pill tactic—it's fascinating how companies can turn the structure of their own shares into a strategic shield. The flip-in and flip-over mechanisms really highlight how financial engineering can be used not just for growth but for defense.

What stands out is the effectiveness of dilution as a deterrent. By giving existing shareholders the ability to buy more shares at a discount, the company essentially shifts the power balance and increases the cost for the hostile bidder. It’s a clever way of making an acquisition financially unattractive without directly rejecting the offer.

The flip-over strategy also adds an extra layer of complexity, as it carries forward even after a merger, making acquirers think twice before proceeding.

Would be interesting to discuss how often poison pills lead to negotiations or revised friendly deals rather than outright blocked takeovers. Thanks for sharing this—it adds real depth to the topic of corporate control.​