The effects of antitakeover provisions on acquisition targets. Describe the basic mechanics of implementing a poison pill antitakeover measure. 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. Measures taken on a continual or sporadic basis by a firms management in order to prevent or deter unwanted takeovers. Over time, however, what actually happened was that almost all bids disappeared and antitakeover measures were never triggered because potential raiders were forced to deal with the boards rather than the shareowners directly. In most existing cases, however, the supermajority provisions have a boardout clause that provides. Finally, examining the second generation of anti takeover laws in the. Poison pills are the most effective corporate anti takeover 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. Adopting a poison pill in response to shareholder activism. The validity of poison pills received a big boost when the delaware supreme court upheld a flipover pill in moran v.
Internal and external corporate governance provisions and activities can take many forms, including a poison pill provision. This suggests that the prebid poison pill, combined with the staggered board, sends a strong signal that the firm is ready to resist the takeover, which is consistent with bebchuk and cohens 2005 argument. Suicide pill, a physical pill for suicide by poison. The effect of other anti takeover provisions on the adoption of a poison pill has been evaluated with the governance provision of a classified board. Therefore, an employee share option plan goes along with an anti takeover provision. Corporate governance and firm valuation sciencedirect. Poison pill defenses are used by companies to prevent a. Using a sample of 578 poison pill adoptions and controlling for selfselection, we find that investors react negatively to poison pills adopted to protect net operating losses nol poison pills. The effects of antitakeover provisions on acquisition. A common risk of anti takeover provisions is that management entrenches itself instead of acting in the full interest of the shareholders.
Target governance provisions and acquisition types. Maduraimpact of anti takeover amendments on corporate performance. Cnets anti takeover provision may be boardroomfriendly, but its not necessarily good for investors. Mainly to protect shareholders from the board using company cash and paying too much for stock simply to save management. Postoffer defences pacman defence greenmail asset restructuring litigation liability restructuring. Importantly, the combination of staggered board and preexisting poison pill shows even stronger protection than the staggered board alone. The majority of american companies utilize minimum one anti takeover defence. The discussion of anti takeover methods, including the poison pill, has shifted into high gear since fall 2008.
O this provision and anti takeover strategy attempts to increase, rather than reduce, the number of shares that o this provision allows a target firms shareholders. A company targeted for a takeover uses a poison pill strategy to make shares of the. Dean lebaron, president of batterymarch, said his company had always voted against poison pills and other anti takeover devices but declined to say what he would do in. Delawares antitakeover statute continues to give hostile. These strategies could be either precautionary such as poison pills, staggered board, fair price, and supermajority or reactive such as white knight, greenmail, and recapitalization. This book supplies practitioners with an examination of the development and types of poison pills, and an analysis of recent judicial decisions in the area. Although the original poison pills were used as antitakeover defenses, delaware courts have continued to apply unocal and unitrin to poison pills that companies have adopted to limit activists additional accumulation of shares.
Antitakeover provisions and shareholder value implications. Poison pills were developed in the 1980s as an antitakeover device. Such plans allow existing shareholders the right to purchase additional shares at a discount, effectively diluting the ownership interest of any new, hostile party. We find that units are more likely to adopt poison pills at the time of a spinoff if their parents have anti takeover provisions in place. Explain why poison pills provisions often result in reduced stockholder wealth. Identify the statement that correctly describes the respective measure. Defensive antitakeover board measures cfa institute. Supermajority amendment is a defensive tactic requiring that a substantial majority, usually 67% and sometimes as much as 90%, of the voting interest of outstanding capital stock to approve a merger. The poison pill anti takeover defense economy if widely adopted. Abstracts of selected poison pills, samples of relevant sec filings, poison pill proxy materials, and other materials are included in the work. In some cases, a scorchedearth defense may develop into an extreme anti takeover defense called a poison pill. Which of the following best describes this element in a firms charter. The poison pill is the anti takeover tactic adopted by the firm to discourage a hostile takeover, by making the stock unfavorable for the corporate.
What effect do poison pills have on shareholder value. Bebchuk calls his proposal a poison pill antidote, and he says it will. The reason lies in the different sources of gains derived by the raiders of yore and todays activists. Although the original poison pills were used as anti takeover defenses, delaware. For many years, ceos, consultants and even business school textbooks have argued that anti takeover provisions fend off takeover advances and allow firms to bargain for a higher price in the event of a hostile takeover. They were invented by securities lawyer martin lipton in 1982 and upheld by delaware courts moran v. Poison pill, a subclass of corporate anti takeover shark repellent to make the corporate target unappealing to an attacker. A poison pill is a defense tactic utilized by a target company to prevent. In addition, the probability that a spinoff unit adopts a. A poison pill is a form of defense tactic utilized by a target company to prevent or discourage attempts of a hostile takeover by an acquirer. The defense offered by these provisions is often repealed by target boards when potential acquirers increase the offer price. 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. Although pills have been in common use as anti takeover devices since the 1980s, it is only nowin the context of anti activist pills that many design features of pills start to matter. This amendment makes a hostile takeover much more difficult to perform.
Poison pill provisions can be adopted without stockholder approval and is classified as an operating provision. Abstracts of selected poison pills, samples of relevant sec filings, poison pill proxy materials. The more protected the firm, the less takeover premium it can command. On the use of poison pills and defensive payouts by takeover. Poison pills as an anti takeover device poison pills were developed in the 1980s as an anti takeover device. A poison pill is a tactic utilized by companies to prevent or discourage hostile takeovers. Poison pills are viewed more negatively on both dimensions. Poison pills have an insignificant impact on the likelihood of takeover bidding, a result that differs from comment and schwert 1995, who find that poison pills are associated with an increase in the likelihood of a takeover bid. Antitakeover definition in the cambridge english dictionary. N said on wednesday that it would not waive its poison pill anti takeover provision to allow billionaire investor ronald burkle to nearly double.
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. The fair trade commission ftc previously opposed the introduction of the poison. Greenmail is the practice of buying enough shares to threaten a hostile takeover so that the target company will repurchase its shares at a premium. Such provisions of a flipin are often publicly available in a. Furthermore, evidence in line with the insider holding hypothesis, which. Shareholder rights plan, also called a poison pill, a subclass of anti takeover.
Poison pills are provisions approved by shareholders of potential takeover targets that, among other things, enable management to sell large blocks. Popularly known as corporate raiding, takeovers are hostile mergers intended to acquire a corporation. A backend plan, also known as a note purchase rights plan, is a type of poison pill defense. 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. A defensive strategy based on issuing special stock that is used to deter aggressors in corporate takeover attempts. We provide a comprehensive policy and doctrinal analysis of the use of poison pills again activists in corporate governance contests. The more official term is shareholder rights plan, but a poison pill sounds.
It provides the mechanics, procedures, and key drafting language, plus realworld examples to illustrate the ins and outs of this strategy. 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 bcf entrenchment index sums the presence of the six anti takeover provisions that are part of gindex. However, comment and schwert 1995 find that antitakeover provisions such as poison pills do not influence the likelihood of firms being acquired. Over time, however, what actually happened was that almost all bids disappeared and anti takeover measures were never triggered because potential raiders were forced to deal with the boards rather than the shareowners directly.
Faced with a potential hostile takeover, companies may deploy a dramatic. Poison pills super majority clause golden parachute dual class recapitalization. Practically, the acquirer must buy at least 51% or more paid up equity of the acquired company to enjoy full control over its operations. Three common anti takeover measures often appear during contests for corporate control. The poison pill is one of the most powerful defenses against hostile takeovers. The poison pill is a defensive strategy used against corporate takeovers. Does protectionist antitakeover legislation lead to. While the anti takeover process of greenmail is effective, some companies have implemented anti greenmail provisions in their corporate charters. The two most common anti takeover defences are the poison pill and the staggered board. Internal and external corporate governance provisi.
Pickens attacks phillips poison pill the new york times. An empirical research on the adoption of poison pills. Describe the basic mechanics of implementing a poi. Delawares antitakeover statute continues to give hostile bidders a meaningful opportunity for success. A poison pill is a defense tactic utilized by a target company to prevent, or discourage, attempts of a hostile takeover by an acquirer. Amps use of a restrictive poison pill plan and defensive repurchase prior to. The poison pill device contains the strategies needed to avoid hostile takeovers by utilizing shareholders rights plans, or poison pills.
Goldfields flipover provision says that the poison pill also applies to the stock of any company that merges with goldfield or buys more than half its assets. The pills can be flipin, flipover, dead hand, and slowno hand. Certainly, these definitions describe a vast spectrum of different devices. Corporate takeover bill protects stockholders baltimore. Click the book below to download our free guide and learn what to expect. This poison pill provision directs attention to the acquirers stock. Thus, while many studies assume that the gindex measures the firms takeover vulnerability, this study provides evidence inconsistent with this assumption and shows that out of 24 governance provisions available to researchers the staggered board poison pill combination is the most effective in measuring a firms takeover protection.
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