| 1. | a pellet of a quick-acting poison, as cyanide, for a spy to carry in order to commit suicide when faced with capture or torture. |
| 2. | Financial Slang. any of various business devices created to prevent a company from being taken over by another, as issuing a new class of stock or stock warrants that would become costly to the buyer in the event of a takeover. |
| poison pill n. Informal A plan or tactic intended to make a hostile corporate takeover prohibitively expensive, as one in which a company's stockholders are offered shares of stock at a bargain price in the event that a single suitor acquires a high percentage of the stock. |
Poison Pill
A strategy used by corporations to discourage a hostile takeover by another company. The target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills:
1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount.
2. The "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger.
Investopedia Commentary
1. By purchasing more shares cheaply (flip-in), investors get instant profits and, more importantly, they dilute the shares held by the competitors. As a result, the competitor's takeover attempt is made more difficult and expensive.
2. An example of a flip-over is when shareholders have the right to purchase stock of the acquirer on a 2-for-1 basis in any subsequent merger.
This is similar to the macaroni defense, except it uses equity rather than bonds.
Related Links
The Wacky World of M&As
The Basics of Mergers and Acquisitions
See also: Bankmail, Blank Check Preferred, Greenmail, Lady Macbeth Strategy, Lobster Trap, Macaroni Defense, Pac-man, Participating Preferred Stock, People Pill, Scorched Earth Policy, Share Purchase Right, Shark Repellent, Suicide Pill
poison pill