RE: Options……..11 Jun 2026 08:47
Mechanism of Poison Pills
The poison pill is a tactic companies use to deter takeovers by unwanted companies. Often called a shareholder rights plan, it is meant to frustrate creeping acquisitions of control, in which the acquirer seeks to accumulate a controlling or dominant stake without negotiating with the board or offering the same deal to every shareholder.
Because many shares come with ownership and voting rights, it is possible to own enough to purchase a controlling amount of shares with voting rights. So, if one entity owns the right amount of shares, their votes weigh more than those with fewer shares.
To prevent this, the potential target creates a provision that prevents hostile takeovers by establishing a share ownership limit. This provision may specify that if a single entity or person acquires a stake of 15% or more, the company implements a share issuance or other measure that makes the hostile action ineffective or undesirable.
In a flip-in, all other shareholders become eligible to acquire additional shares for a large discount or free. The party with the 15% stake is excluded from the stock issuance. This increases the number of outstanding shares and dilutes that party's stake, thus averting the takeover.