Poison Pill

Search Dictionary

Definition of 'Poison Pill'

A poison pill is a tactic used by a company's board of directors to make a hostile takeover prohibitively expensive or difficult. This can be done by issuing new shares of stock that are only available to existing shareholders, or by changing the company's bylaws to make it more difficult to acquire a controlling interest.

Poison pills are designed to make a takeover so expensive that the acquiring company would be better off simply walking away. They can also be used to give the target company's shareholders more time to come up with a defense against the takeover.

There are a number of different types of poison pills, but some of the most common include:

* **Rights plans:** These plans give existing shareholders the right to buy additional shares of stock at a discount if a hostile takeover is attempted. This can make it more difficult for the acquiring company to gain control of the company, as they would have to buy a larger number of shares at a higher price.
* **Blank check preferred stock:** This type of stock is issued at a very low price, and it gives the holder the right to receive a large cash payment if the company is acquired. This can make a takeover prohibitively expensive for the acquiring company.
* **Change of control provisions:** These provisions change the company's bylaws or other corporate documents in a way that makes it more difficult to acquire a controlling interest in the company. For example, they may require a supermajority vote of shareholders to approve a merger or acquisition.

Poison pills are controversial because they can make it difficult for companies to be acquired, even by friendly buyers. However, they can also be seen as a way to protect shareholders from being taken advantage of by hostile acquirers.

Ultimately, the decision of whether or not to use a poison pill is a complex one that must be made on a case-by-case basis. However, it is important for shareholders to be aware of the potential benefits and risks of poison pills before they vote on their adoption.

Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.

Is this definition wrong? Let us know by posting to the forum and we will correct it.