Poison Pills Agreements

If boards introduce a limited poison pill to achieve a specific goal, we expect the duration of the pill to be limited to one year or less, with shareholder approval required to extend the pill after the first year. If boards adopt a pill of one year or less, publicly announce a convincing rationale for its adoption and seek shareholder approval for possible extensions of the pill, Glass Lewis will refrain from recommending that shareholders object to board members who, at the time of their adoption, will serve on the basis of this issue (see paragraph 5, page 18 of our US guidelines for 2020). Founded in the 1980s by the lawyer Martin Lipton, the “poison pill” is a tactic used to thwart hostile acquisitions by state-owned enterprises. It is an agreement reached by the board of directors of a company that makes the action of the objective unaffordable or otherwise unattractive to an undesirable acquirer. To date, no takeover bid has ever seen a poison pill fully executed – management teams have generally used strategy as a deterrent and trading tool, and have bought time for their company to negotiate for a better purchase price. Since shareholders could benefit from an acquisition, they often view the adoption of a poison pill by management as a blatant disregard for the interests of investors. “The adoption of a poison pill can really base a figure on a company`s image in corporate governance,” says Jeffrey Block, associate director of strategic research at Thomson Financial. “There is a backlash in the market against anything that waters down the power of shareholders.” As a result, in some cases, investors send a clear message that they do not agree with management`s strategy by launching a portion of their shares. Think of the example of the oil company Tesoro: when the company took a poison pill in November 2007 to defend itself against billionaire Kirk Kerkorian`s Tracinda Corp., the stock collapsed by nearly 14% between the week before the announcement and the following week. In March 2008, Tesoro`s management abandoned its poison pill, with CEO Bruce Smith saying the company wanted to act in the “best interests of our shareholders.” When companies put a poison pill to the vote, Glass Lewis uses a case-by-case approach to study the characteristics of the plan.

We will consider the support of poison pills containing an expansive “qualifying offer” clause that meets all the following criteria: The poison pill technique, sometimes known as a shareholder rights plan, is a form of defence against possible hostiletantionTake BidA The offer refers to the purchase of a business (the objective) by another company (the acquirer). With a takeover bid, the purchaser usually offers cash, shares or a mixture of both to “bid” a certain price for the purchase of the target company. It is a technique by which the target company tries to make itself less desirable for potential buyers. The poison pill was invented in 1982 by mergers and acquisitions lawyer Martin Lipton of Wachtell, Lipton, Rosen and Katz in response to hostile tender acquisitions. [2] Poison pills became popular in the early 1980s in response to a wave of acquisitions by business thieves such as Carl Icahn. The term “poison pill” deduces its original meaning from a poison pill physically carried by various spies throughout history, a pill taken by spies when they were discovered to eliminate the possibility of being interrogated by an enemy. Since Lipton used the poison pill, several techniques have developed. However, the general idea is to discourage any attempt to acquire from outside, either by making the business less desirable or by placing existing shareholders at a higher point of power.

Both of these objectives can be achieved by selling cheaper shares to existing shareholders, thereby reducing potential equity

Comments are closed.