POISON PILL Meaning and
Definition
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The term "poison pill" refers to a corporate defense strategy employed by a company's management to prevent hostile takeovers and protect shareholder interests. It involves implementing certain measures that make an acquisition less attractive or financially burdensome for the acquiring company.
A poison pill typically takes the form of a specific provision or arrangement within a company's bylaws or charter. One common type is known as a "shareholder rights plan," wherein existing shareholders are granted rights to purchase additional shares of stock, usually at a discounted price, if a hostile takeover attempt is made. This dilutes the acquiring firm's ownership stake and makes the takeover more costly.
Another form of a poison pill is the "asset restructuring," which involves the target company selling off its valuable assets, increasing its debt burdens, or entering into unfavorable agreements with third parties, thus reducing its overall value and making a takeover less lucrative. This tactic is often seen as a last-resort poison pill deployed by a company facing an imminent hostile takeover.
Poison pills are controversial, as they can be seen as a defensive mechanism that favors the existing management over the interests of shareholders. In some cases, poison pills have faced legal challenges, as they may be seen as impeding the principles of a free market economy and inhibiting corporate governance reforms.
Overall, the implementation of a poison pill is a strategic measure designed to discourage and complicate hostile takeover attempts, allowing a target company's management to retain control and protect shareholder value.
Common Misspellings for POISON PILL
- ooison pill
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- 0oison pill
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- pouson pill
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Etymology of POISON PILL
The term "poison pill" has its roots in the field of corporate finance and refers to a defensive strategy used by a company's management to deter or discourage attempts of a hostile takeover. The word "pill" in this context actually represents a metaphorical "precautionary measure" rather than a literal pill.
The term "poison pill" was coined by Harvard Business School professor Martin Lipton in the 1980s when he was advising a client on defense against a takeover bid. He used the phrase to describe a financial tactic that would have negative consequences for the acquiring company and its shareholders, making the takeover undesirable.
The usage of "poison" in "poison pill" derives from the analogy that such a tactic introduces harmful or toxic elements into the takeover process, making it less attractive or financially detrimental to the acquiring party.
Similar spelling words for POISON PILL
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