Merger and acquisition transactions depend a lot on the approval of a target company. Maduraimpact of anti takeover amendments on corporate performance. Amps use of a restrictive poison pill plan and defensive repurchase prior to. Transplanting a poison pill to controlling shareholder regimes. This article is the first to examine systematically state antitakeover law outside delaware. With a poison pill, the target company attempts to make its stock less attractive to the acquirer. The poison pill anti takeover defense economy if widely adopted. This poison pill aids shareholders the new york times. The indicator of the poison pillstaggered board combination. The validity of poison pills received a big boost when the delaware supreme court upheld a flipover pill in moran v. Poison pill nba, a type of player contract provision for some free agents in the national basketball association.
Does protectionist antitakeover legislation lead to. A typically successful defensive strategy in preventing a hostile takeover is something referred to as a shareholder rights plan. Management quality and antitakeover provisions request pdf. Takeovers are always a reality in the competing world of business. A company targeted for a takeover uses a poison pill strategy to make shares of the. A shareholder rights plan, colloquially known as a poison pill, is a type of defensive tactic used by a corporations board of directors against a takeover in the field of mergers and acquisitions, shareholder rights plans were devised in the early 1980s as a way to prevent takeover bidders from negotiating a price for sale of shares directly with shareholders, and instead forcing the. At the simplest level, takeovers are about buying stock.
Recent poison pill developments and trends introduction shareholder rights plans were developed more than 30 years ago to fend off opportunistic hostile offers and other abusive takeover transactions. It is intended to affect the aggressor, which will be burdened with costs if it succeeds in its takeover. Although the original poison pills were used as anti takeover defenses, delaware. Inevitable disclosure doctrine, antitakeover provisions, takeover likelihood. There are typically two types of poison pills as noted below. The impact of antitakeover provisions atps on takeover deterrence and.
Selecticas nol poison pill was designed to protect its nol. Proxy advisory firms, such as institutional shareholder services inc. The discussion of anti takeover methods, including the poison pill, has shifted into high gear since fall 2008. While much has been written about the doctrinal and academic. In effect, it is an agreement adopted by a companys. Research examining mergers during the 1980s suggest that anti takeover provisions help deter the occurrence of takeover bids pound, 1987. Poison pill poison pill antitakeover device that gives a. Describe the basic mechanics of implementing a poison pill antitakeover measure. Moreover, most of the antitakeover provisions are not charterbased, which means that boards can adopt them without shareholders approval. A takeover is a form of an acquisition, wherein the company offers a bid for the purchase of a certain block of the equity of another company target to exercise complete control over its affairs. The effects of antitakeover provisions on acquisition. Antitakeover provisions and shareholder value implications. Flipin poison pill can be chewable, which means that the shareholders may force a pill redemption by a vote within a certain timeframe if the tender offer is an allcash offer for all of the. Elan finds creative poison pill to defend against a hostile.
Jun 06, 20 elans main defense has been instead to make what others have called poison pill acquisitions, or deals that, in essence, act like a poison pill to make the company more expensive and thereby discouraging a hostile takeover. Consistent with recent theory, staggered boardpoison pill combination is the strongest. Takeovers, generally mean a company taking over the management of another company. Poison pills a strategy used by corporations to discourage hostile takeovers. Apr 03, 2011 the shareholder rights agreement or poison pill first became popular in the 1980s as a way to provide a target board with negotiating leverage in the face of a hostile takeover attempt. Rights plans deter unauthorized stock accumulations by imposing substantial dilution upon any shareholder who acquires.
Lessons from the first triggering of a modern poison pill. A poison pill is a hostile takeover prevention strategy used to make the target companys stock look less desirable. In a poison pill defense, existing company shareholders have the right to purchase. Rights can be exercised after a tender offer or the accumulation of a large block of shares by an outside party. We present the first analysis in the literature of the relationship between the quality and reputation of a firms management and the prevalence of anti takeover provisions in the corporate. This papers second contribution concerns the relationship between antitakeover legislation and executive compensation. Although poison pills provide a number of benefits to corporations and investors, they can also be risky. On the use of poison pills and defensive payouts by takeover.
A defensive strategy based on issuing special stock that is used to deter aggressors in corporate takeover attempts. Target governance provisions and acquisition types. In flipover plans exercised rights can be used to purchase stock in the. It is a form of acquisition of a company rather than a merger. The pills can be flipin, flipover, dead hand, and slowno hand. A poison pill is a tactic utilized by companies to prevent or discourage hostile takeovers. Adopting a poison pill in response to shareholder activism in his regular column, frank aquila drafts a memo to a board explaining the considerations it should evaluate when deciding whether to adopt a poison pill. Importantly, the combination of staggered board and preexisting poison pill shows even. Poison pill poison pill anti takeover device that gives a prospective acquirees shareholders the right to buy. Measures taken on a continual or sporadic basis by a firms management in order to prevent or deter unwanted takeovers. Shareholder rights plan, also called a poison pill, a subclass of anti takeover provisions that dilutes the attackers power. Poison pills, or provisions to thwart takeovers, usually benefit management rather than shareholders. Practically, the acquirer must buy at least 51% or more paid up equity of the acquired company to enjoy full. This study provides large sample evidence on the effects of antitakeover provisions atps on takeover probability and premia in modern takeover contests.
The poison pill is unique among anti takeover strategies. The law and finance of antitakeover statutes yale law school. The practice of using poison pills to fight takeover attempts has come under scrutiny both by critics and the courts in recent years for some of the following reasons. Whereas antitakeover legislation has implications for executive compensation, these have received little attention so far due to a lack of data for the 1980s a notable exception beingbertrand and mullainathan,1999a. These results inform longrunning theoretical debates over which provisions affect takeover likelihoods. But her dream becomes a nightmare when a wall street raider threatens a hostile takeover. Despite the fact that hostile bids are uncommon during the 1990s2000s, some atps have strong but opposing effects on takeover outcomes. Poison pill amendment legal definition of poison pill amendment. Poison pill rights to preferred stock issued to shareholders. These models yield many novel and important insights. The fair trade commission ftc previously opposed the introduction of the poison.
Highlights versata enterprises triggered selecticas poison pill in december 2008, becoming the first stockholder to have intentionally swallowed a modern poison pill. Poison pill provisions can be adopted without stockholder approval and is classified as an operating provision. The effects of antitakeover provisions on acquisition targets. Mar 22, 2017 we provide a comprehensive policy and doctrinal analysis of the use of poison pills again activists in corporate governance contests. Today, despite a widely documented decline in its prevalence over the past five to 10 years, the poison pill continues to be an effective antitakeover. However, repellent characters, amateurish writing and a loss of focus on the main action make for a missed opportunity.
Trade secrets protection and antitakeover provisions harvard. It conducts a research of all available cases to find whether states with pill endorsement and other. Nols on the books of a potential target company, it will take a significant amount of. The poison pill is one of the most powerful defenses against hostile takeovers. One debate is whether the actual deployment of a poison pill provides incremental takeover protection. As such, many boards may be in the process of considering the adoption, renewal or amendment of an antitakeover or nol pill or, in many cases, at least putting such a pill on the shelf for future use. However, comment and schwert 1995 find that anti takeover provisions such as poison pills do not influence the likelihood of firms being acquired. Fair price supermajority provisions waived if bidder pays all stockholders the same price. Using shareholder rights plans poison pills to fight takeovers. Poison pills are viewed more negatively on both dimensions. It is not rare to find companies merging together with each others consent. Poison pill has the bones of a good corporatetakeover potboiler, an underexplored genre. Poison pills were developed in the 1980s as an antitakeover device. Although pills have been in common use as antitakeover devices since the 1980s, it is only nowin the context of antiactivist pillsthat many design features of pills start to matter.
Established as a mechanism in 1982, the shareholder rights plan is often more pleasantly referred to as the poison pill. Popularly known as corporate raiding, takeovers are hostile mergers intended to acquire a corporation. Worse, the raider is no ordinary cutthroat but her exhusband josh katz, father of their teenage son. Adopting a poison pill in response to shareholder activism. The poison pill is a defensive strategy used against corporate takeovers. Takeover defenses and wealth effects on securityholders. Despite its fanciful name, the poison pill does not destroy the target company. We make implications for both corporate governance research and managerial practices regarding firms antitakeover provisions. Poison pills as an anti takeover device poison pills were developed in the 1980s as an anti takeover device.
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