How It Works
- 1
Board adopts shareholder rights plan without shareholder vote
- 2
All shareholders receive 'rights' attached to their shares
- 3
If anyone crosses threshold, rights become exercisable
- 4
Rights allow purchase of company stock at 50% discount
- 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.