Back to Money Strategies
governance

Poison Pill

"Raises cost of aggression, buys time"

A shareholder rights plan that massively dilutes any acquirer who crosses a ownership threshold (typically 15-20%) without board approval.

How It Works

  1. 1

    Board adopts shareholder rights plan without shareholder vote

  2. 2

    All shareholders receive 'rights' attached to their shares

  3. 3

    If anyone crosses threshold, rights become exercisable

  4. 4

    Rights allow purchase of company stock at 50% discount

  5. 5

    Massive dilution makes acquisition economically unviable

Key Mechanics

Flip-in: Rights holders can buy target shares at discount

Flip-over: Rights convert to acquirer shares in merger

Dead-hand: Only continuing directors can redeem

No-hand: Rights cannot be redeemed for set period

Regulatory Context

Upheld by Delaware courts as valid defensive measure (Moran v. Household, 1985). Courts balance board's right to defend against entrenchment.