Definition of Poison pill:
Takeovers are fairly common in the business world, where one company makes an offer to assume control over another. Larger companies tend to take over smaller ones if they want to get into a new market, when there are operational benefits by combining both entities, or when the acquirer wants to eliminate the competition. Takeovers, though, aren't always harmonious and become hostile when the target doesn't entertain or want to be taken over.
The term poison pill refers to a defense strategy used by a target firm to prevent or discourage a potential hostile takeover by an acquiring company. Potential targets use this tactic in order to make them look less attractive to the potential acquirer. Although they're not always the first—and best—way to defend a company, poison pills are generally very effective.
Defensive tactics that make hostile takeover by a corporate-raider prohibitively expensive or unattractive. Poison pill takes several forms: (1) provision that makes the firms all debts immediately payable if the board of directors is changed; (2) distribution of warrants or purchase rights for buying the firms stock (shares) at a heavy (usually 50 percent) discount when a triggering event (takeover attempt) occurs, thus immediately diluting the raiders ownership interest and voting rights; and/or (3) issuance of a new series of preferred stock (preference shares) that gives stockholders/shareholders (not including the raider) right to redeem them at a hefty premium after a takeover. See also leveraged recapitalization and shark repellant.
A tactic used by a company threatened with an unwelcome takeover bid to make itself unattractive to the bidder.
How to use Poison pill in a sentence?
- I did not trust the doctor because he might give me a poison pill that would kill me, or injure me very badly.
- A poison pill is a defense tactic utilized by a target company to prevent or discourage hostile takeover attempts.
- Sometimes you just need to take the poison pill and get it over with before you suffer any longer in your plan.
- The poison pill was administered by the opposing firm in the market which made out next play complex and difficult to create.
- Poison-pill defenses.
- Poison pills allow existing shareholders the right to purchase additional shares at a discount, effectively diluting the ownership interest of a new, hostile party. .
- Poison pills often come in two forms—the flip-in and flip-over strategies.
Meaning of Poison pill & Poison pill Definition