Premium Essay

Poison Pill

In: Business and Management

Submitted By tracy0iverson
Words 1428
Pages 6
Poison pill strategies are defensive tactics that allow companies to thwart hostile takeover bids from other companies. Many companies may find themselves unprepared when facing such bids. By adopting a poison pill strategy, a company can be somewhat reassured that acquiring companies will approach its board of directors, not the shareholders. Poison pill strategies are also known as shareholders' protection rights plans.
During the late 1950s and early 1960s, several large corporations began acquiring other companies to diversify their operations. Diversification allowed them to offset their losses in a failing industry with profits from other unrelated, successful industries. Such phenomena caused concerns about the potential of conglomerates to concentrate excessive economic power in the hands of a few corporations. This led to the passage of the Williams Act in 1968, which required the acquiring company to fully disclose the terms of an impending acquisition and to allow a period for competing offers for the target company to be made. By the late 1970s, the pace of acquisition nearly came to a halt. In 1982, however, the U.S. Supreme Court passed a landmark ruling in the case of Edgar v. MITE Corp. that invalidated the basis for anti-takeover laws in thirty-seven states. Furthermore, under the Reagan administration, the U.S. Department of Justice followed a lax policy towards enforcing anti-takeover laws. No longer able to shelter themselves against unfriendly takeover bids, many companies opted to devise anti-takeover strategies. At that time there was a significant increase in poison pill adoptions. However, in light of recent corporate scandals and an overall perception of poor corporate ethics poison pills began to show a decline between 2002 to 2004.
Most poison...

Similar Documents

Premium Essay

Poison Pills

...[1] Please descirbe the purpose of First-Generation Poison Pills; Second- Generation Poision Pills and Third Gereration Posion Pills. [2] Impact of Poision Pills on Stock Prices. [3] List the Preliminary Takeover Steps: a) Bidding Strategies b) Casual Pass c) Bear Hugs [4] What is Tender Offers Throughout the years many acquisitions have been hostile, which has led to companies to creative preventative and defensive takeover methods. Preventative is used as a way to reduce the likelihood of a takeover, and defensive measure (active measures) are used afer a hostile bid has been issued. Keeping the company successful with shares at a high cost prevents short-term gain takeover. There are two hypothesis that explain the impact on management and stockholders during a hostile takeover. Management Entrnechment hypothesis states that nonparticipating stockholders experience a reduction in wealth when management tries to stop a takeover, where Shareholders interests hypotheiss states that stockholders’ wealth rises when management prevent takeover. Companies today monitor it’s shareholders and the percentage that they own as a way to foresee a potential hostile takeover. Many companies even sell and provide their employees with shares because they are more likely to oppose a takeover, whereas an investor shareholder will more likely to favor a takeover. When an increase of trading occurs, the company gets a......

Words: 1065 - Pages: 5

Premium Essay


...Define each type. The first type of merger is with Bijoux, which is known as a conglomeration. A conglomeration is a merger between companies that do not have the same business areas. The second is a horizontal merger with Stopper,Inc. A horizontal merger occurs with companies that distribute the same products and the same market(McClure, 2013). McClure, B. (2013, May). Mergers and acquisitions: Definition. Retrieved from After consultation with corporate counsel and outside financial advisors, the Board of Directors decides to consider the following four responses to the Bijoux proposal. a. AgroVate’s board can consider a shareholder rights plan, also known as a poison pill. If Bijoux acquires more than 20% of the stock, current shareholders (but not Bijoux) will be given an additional share for each share they own (a split). This means Bijoux would have to buy many more shares in order to gain control, thus substantially driving up the cost to Bijoux to acquire AgroVate and making the acquisition too expensive. The board can...

Words: 432 - Pages: 2

Premium Essay

Fin 710

...1. Poison Pills are type of preventative defense installed to discourage an unwanted (hostile) takeover bid by another company. The target company attempts to make its firm (in terms of stock) less attractive (valuable) to the acquirer. In other words, they are provisions designed to make hostile takeovers too expensive. When an outside company or individual acquirer acquires enough stock to gain a controlling interest in the target company, a poison pill is triggered. Hostile acquirer is not able to participate in this purchase of new shares. As a result of the inflow of new target shares (of which hostile acquirer was not able to purchase any), hostile acquirer’s ownership percentage is substantially diluted. Faced with such dilution, hostile acquirer has no choice but to give up its hostile approach. Shareholders other than hostile acquirer are able to buy newly-issued target shares at a substantial discount. If hostile acquirer wants to continue, it has only two practical choices: (1) negotiate with target since only target’s board has the power to redeem the poison pill; or (2) launch a proxy contest to gain control of target’s board of directors because, again, only target’s board has the power to redeem the poison pill. There are two types of poison pills: flip-in and flip-over. A flip-in allows existing shareholders (other than the hostile acquirer) to buy more shares at a discounted price. By purchasing more shares cheaply, investors get instant profits and, more...

Words: 1082 - Pages: 5

Free Essay


...Poison Pill Use in the Banking Industry Introduction The 1980s was an era of expansive mergers and acquisitions fueled by the popularity of corporate raids. Although this drastically changed the landscape ofmany industries, the banking industry was relatively untouched. Commercial banks were protected from hostile takeovers by federal regulations. The McFadden Act of 1927 and the Bank Holding Company Act of 1956 supported the existence of 24,495 small banksl in 1985.However, by 2003 there were 11,021 small banks and 80 banks had adopted a poison pill plans (Critchfield, Davis, Davison, Gratton,Hanc, Samolyk, 2004). The Riegle Neal Interstate Banking and Branching Efficiency Act of 1994 was the catalyst of the rapid consolidation. Prior to this act, a commercial bank could only make acquisitions across state lines if state the bank was operating in and the state of the target allowed interstate banking. Riegle Neal removed state and federal restrictions on bank mergers creating rapid consolidation in the industry. During this period of deregulation, a growing number of banks adopted poison pill plans. A poison pill plan is a defensive measure adopted by a management team to protect a company from an unwanted takeover. Functionally, this measure releases additional shares of stock, at a discount, to shareholders of record when an unwanted acquirer achieves pre-specified stake in the company. This version...

Words: 1982 - Pages: 8

Free Essay

Marketing at Wachtell

...“Marketing” at Wachtell, Lipton, Rosen & Katz The American Lawyer published the 1995 results of its annual “Am Law 100” survey and the survey reported that Wachtell, Lipton, Rosen & Katz had reclaimed the top spot in revenue per lawyer and profit per partner and had grossed $990,000 per lawyer – over $200,000 more than the second place firm. Summary of “Marketing” at Wachtell, Lipton, Rosen & Katz The American Lawyer published the 1995 results of its annual “Am Law 100” survey and the survey reported that Wachtell, Lipton, Rosen & Katz had reclaimed the top spot in revenue per lawyer and profit per partner and had grossed $990,000 per lawyer – over $200,000 more than the second place firm. Ⅰ. Early History    Wachtell, Lipton, Rosen & Katz (Wachtell Lipton) opened its doors in 1965. The founders were determined that their firm be an old-fashioned partnership rather than a business. They wanted to avoid hierarchy and to promote a congenial and egalitarian working environment and focused on excelling in a few select areas: corporate law, tax, antitrust, creditors’ rights, and litigation.  Wachtell Lipton quickly established an excellent reputation. They successfully handled a law suit for Lipton’s friend’s firm which is the most prominent Wall Street investment firm. As a result, they did a lot more legal work for this firm, and this firm recommended them to its clients. Ⅱ. Operating Principles  Wachtell Lipton thrived over the following......

Words: 1097 - Pages: 5

Free Essay

Takeover Defenses

...(2004), it involves directly approaching the company’s shareholders ignoring the executives and the board of directors. However, there are appropriate takeover defences that can be utilised to safeguard any hostile takeover and these could be discussed below: Firstly, poison pill is a defense strategy in which the target company offers its stockholders preferred stock in the merged firm at a highly attractive rate of exchange as a mandatory consequence of a successful takeover (Pearce & Robinson, 2004).. The reason behind this is to dilute the stock such that the attacking firm loses money on its investment. Example research conducted by J.P. Morgan offers evidence that poison pills benefit target firm stockholders. Secondly, to prevent unwelcome corporate suitors from acquiring enough stock to take control of the corporation, flip-in poison pills can be used and with flip-in options, stockholders are given the right to acquire additional shares in the target company at a substantially lower price than the current offering (Pearce & Robinson, 2004). For example, All American Semiconductor announced in 2000 that its board had adopted a flip-in poison pill to be activated when a pursuer announced a tender offer that would result in its owning 15 percent of the common...

Words: 512 - Pages: 3

Free Essay

Ethics in Business

...ETHICS IN FINANCE Meaning of Ethics Ethics is the study of human behavior which is right or wrong. In general, ethics means doing right things to others, being honest to others, being fair and justice to others. Even ethics in finance is a compartment to general ethics. Ethics are very important to maintain constancy in social life, where people work together with one another. In the process of social development we should not be conscious of ourselves but also conscious to take care of others. WHAT IS FINANCE Finance means fund or other financial resources; it deals with matter related to money and the market. The field of finance refers to the concept of time, money and risk and how they are interrelated. Banks are the main facilitators of funding. Funding means asset in the form of money Finance is the set of activities that deals with the management of funds. It helps in making the decision like how to use the collected fund. It is also art and science of determining if the funds of an organization are being used in a right manner or not. Through financial analysis, any company or business can take decision in making financial investments, acquisition of company, selling of company, to know the financial standing of their business in present, past and future. It helps to stay competitive with others in making strategic financial decisions. Finance is the backbone of business; no business can run without finance. WHAT IS ETHICS IN FINANCE Ethics in......

Words: 1891 - Pages: 8

Premium Essay

Case Study 3.1 Teva Acquires Cephalon in a Hostile Takeover in the European Market for Corporate Control

...many pharmaceutical companies, they were vulnerable to the loss of patent protection on a key drug and were seeking access to a firm with a substantial number of new drugs under development. 2. Both firms initially approached Cephalon on a friendly basis, interested in avoiding an auction for the target and the potential for customer attrition, loss of key employees, and disruption to suppliers if the acquisition became hostile. However, Valeant decided to pressure the target by going directly to the shareholders with an all-cash hostile tender offer. Simultaneously, the firm initiated a proxy fight in an attempt to change the composition of the Cephalon board in order to have the board rescind the firm’s shareholder rights plan (poison pill), which if triggered would have increased the cost of the takeover. Valeant used a consent solicitation card which would enable Cephalon shareholders to support Valeant’s slate of directors without scheduling a formal shareholders meeting to hold a vote for directors. Teva assumed the role of white knight since it was the partner preferred by Cephalon’s directors and senior management. Teva’s most potent takeover weapon was its willingness to pay about 12 percent more than Valeant for Cephalon. It justified the higher price by placing a greater value on Cephalon’s drug pipeline. 3. Both companies could have...

Words: 582 - Pages: 3

Premium Essay


...6) How does CSX intend to take control of Conrail? Explain how they intend to accumulate 50% of Conrail’s shares. As of October 15, 1996 CSX Corporation (CSX) intended to merge with Consolidated Rail Corporation (Conrail) by offering a two-tier deal, structured in the following manner. CSX would purchase 90.5 million fully diluted Conrail shares by paying $92.50 per share for the first 40% of the shares (the front-end offer) and would enter a share exchange for the remaining 60% of the required shares (the back-end offer). The front-end offer would be executed in two stages. The first stage, which began the day after the merger announcement, would be a cash tender offer to acquire 17.86 million shares at $92.50 per share (accounting for 19.7% of Conrail’s acquisition shares). The second stage, which could only be executed by mid-November once Conrail shareholders decided to void the “fair value” statute under Pennsylvania law, would be to acquire another 18.4 million shares at $92.50 per share (accounting for another 20.3% of Conrail’s acquisition shares) Following shareholder approval, and successful completion of the second cash tender offer, CSX would proceed with the back-end offer through a share swap of 1.85619 CSX shares for every 1 Conrail share in addition to an extra $16 of new convertible preferred stock. This two-tier structure of paying in both cash and stock not only allows CSX to abide by Pennsylvania’s antitakeover laws, but also saves on cash spent in...

Words: 301 - Pages: 2

Free Essay


...treatment or management of an actual poison exposure. Causes * Items that can cause poisoning include: * Carbon monoxide gas (from furnaces, gas engines, fires, space heaters) * Certain foods * Chemicals in the workplace * Drugs, including over-the-counter and prescription medicines (such as an aspirin overdose) and illicit drugs such as cocaine * Household detergents and cleaning products * Household and outdoor plants (eating toxic plants) * Insecticides * Paints Signs and symptoms of poisoning Common signs and symptoms to look for include: * Burns or redness around the mouth and lips, from drinking certain poisons * Breath that smells like chemicals, such as gasoline or paint thinner * Burns, stains and odors on the person, on clothing, or on furniture, floor, rugs or other objects in the surrounding area * Empty medication bottles or scattered pills * Vomiting, difficulty breathing, sleepiness, confusion or other unexpected signs FIRST AID * When the Poison Was Swallowed 1. Call emergency services or a poison control hotline immediately. Swallowing a poison can lead to serious complications that can't be addressed without medical intervention. If you suspect someone has swallowed a poison, get help right away. Try to determine what caused the poisoning and have the person's age and weight ready to give to the person who answers the phone. * Look for pills, plants or berries (berries),...

Words: 1252 - Pages: 6

Premium Essay

Regulating the Regulators

...Assignment 3: Persuasive Paper Part 1: A Problem Exists “Regulating the Regulators” Written By: Christine Roccasalvo Professor Holly Sprinkle Research & Writing ENG 215 Sunday, August 05, 2012 Statistical figures of the accidental deaths of minors due to negligence in supervision have soared; emergency departments have called such overdoses “accidental.” “Should minors take their mental health prescriptions without parental supervision; should these medications be left at their reach?” According to G. Randall Bond, Randall W. Woodward, and Mona Ho (Journal of Pediatrics, 2011) children are at great risk due to the sheer ubiquity of accessible prescription pill bottles in their homes. According to WebMD ("Drug overdose," 2005) children younger than 5 years of age tend to place anything and everything into their mouths. WebMD specifies that unsupervised children tend to swallow medications by accident due to their innocent curiosity; these statistics also include parental negligence of leaving the drug at the child’s reach. It is commonly seen that if one child has unintentionally swallowed the drug there is a great chance that the child would often share the drug with other children. The scope and outline of this research is to examine statistical figures of children and adolescents overdosing and prematurely dying due to mental health medications. According to J. Setlik, Mona Ho, and G. Randall Bond (Clinical Toxicology, 2010) between 2001 and 2008, the amount......

Words: 1479 - Pages: 6

Free Essay

Malithion Risk Assessment

...Risk Assessment Hazard Identification Risk assessment begins with hazard identification. Malathion is a wide spectrum, non-systemic organophosphate insecticide commonly used to control ectoparasites, household insects, sucking and chewing insects in agriculture, and mosquito populations ( 2012). It is also sold over the counter as a medicine used to kill lice and their eggs. Toxicity in animals depends on product purity and the method it is administered. Dose-Response Assessment Dose responses in humans and animals differ from species to species and according to dose concentration. Malathion exposure occurs through ingestion, inhalation, and absorption. Human exposure usually results in nausea, headache, and tightness in the chest. Although Malathion is classified as a slightly toxic, lethal doses have been recorded for humans. The lowest lethal dose of Malathion recorded is three times higher for men than women ( 2012). Alergic reaction to Malathion causes severe dizziness and trouble breathing. Lab tests indicate that rats do not normally have adverse reproductive and development effects from Malathion exposure at low doses and prolonged exposure. High doses can cause teratogenic effects when fed to rats through a stomach tube. Malathion can, however, pass through the placenta of pregnant goats and cause birth defects and increased newborn mortality rates. Chronic toxicity may cause mutagenic risks to humans. Lab test......

Words: 698 - Pages: 3

Premium Essay

This Is the Dark Time My Love

...This is the dark time my love Themes: War, power and authority/lack of freedom Tones and Moods: anxiety pressure and fear Metaphor: brown beetles "This is the Dark Time My Love" is poem that deals with cruelty and the pain and suffering of war The repetition of the line ‘This is the dark time, my love’ emphasizes on what a dreadful and fearful time it was. They were almost there, almost free of the British hold. Even Mother Nature herself was aware of the struggle: ‘The shining sun is hidden in the sky. Red flowers bend their heads in awful sorrow’ * 'brown beatles' refers the tankers.                  PERSONIFICATIONS 'Red flowers bend their heads.....' this is to show that flowers/nature is feeling the pain. 'dark metals' represents the guns. 'hidden sun in the sky' symbolizes the hidden hope of the people. OXYMORONS- 'carnival of misery' and ' festival of guns' Who comes walking in the dark night time? Whose boot of steel tramps down the slender grass? It is the man of death, my love, the strange invader Watching you sleep and aiming at your dreams. Aiming at the dreams of the innocent, people who had a right to look forward for a brighter future for their country and themselves. Free of being bullied, hated and looked down upon because of being different only to have a dark shadow cast over them by the invasion of the soldiers. Dulce et decorum est Simile Like old beggars’ l.1. The soldiers are deprived of dignity and health like the elderly and...

Words: 796 - Pages: 4

Free Essay

Newmont Case Analysis

...Newmont Case Analysis As can be seen in this case, a truck of Newmont Mining Company leaked 151 kilograms of mercury, which was a by-product of gold mining in the Yanacocha mine in Peru, along a village road. Due to this leak incident, more than 1,000 local residents were sickened by the toxic mercury, which had caused blindness, neurological damage and other health problems. The company, however, claimed that the mercury had no long-term damage to the patients, and those who hadn’t become ill at that time didn’t have a risk to become ill in the future. This argument, nevertheless, had been challenged by the US Environment Protection Agency (EPA), which warned that elemental mercury was extremely poisonous, which could cause severe health problem. What made thing worse was that after the occurrence of this incident, Newmont hired both the local residents and a team of day laborers to collect the mercury and clean up the road without any protective clothing or safety training. Besides this leak incident, Newmont had already caused numerous damage to environment in Yanacocha such as the contamination of water and crops. Eventually, Newmont’s violation of both the environment and the local residents’ way of life had led to the fierce protest from the locals. Due to the locals’ resistance, Newmont’s business and operation in Yanacocha had been disrupted, which had caused a decline in profits. One possible way for Newmont to improve the intense situation is to build up......

Words: 955 - Pages: 4

Free Essay

The Pesticide Problem and Proposed Solution

...The Pesticide Problem and Proposed Solution Risk Assessment Oscar Rodríguez Marrero SCI275 February 27, 2011 The Pesticide Problem and Proposed Solution The city council of Genericville has been presented with a proposal regarding the use of the pesticide Malathion within the city limits. This pesticide is used to control the mosquito population and is been registered for use in the United States since1956 (EPA). According to the US Environmental Protection Agency, the administration of the Malathion pesticide is not harmful to humans or the environment if applied in accordance to the product safety regulations. It the responsibility of the City Council members of Genericville to make and inform a decision that is in the best interest of the residents of Genericville, the city council members, and their visitors. Due to an enlarged mosquito breeding area after a season of heavy rainfall, recent studies have been performed in our wetlands. There are projections that there could be 50 cases of WNV in Genericville this year with two fatalities. With a population of 100,000, this would mean that one out of every 2,000 people will likely become infected this year without the use of pesticides. The Malathion pesticide program could reduce the number of cases from 50 to five, with less than a 20% chance of a fatality. These numbers are too significant to ignore. There is also the concern about the summer tourism and the Generic River, and how they could be......

Words: 1347 - Pages: 6