Poison Pill Strategy

The Poison Pill Strategy is a corporate defense tactic designed to deter hostile takeovers. It involves implementing measures that make a company less attractive to potential acquirers. One common approach is to issue a large number of new shares at a discounted price to existing shareholders, which dilutes the ownership of the potential acquirer. This makes it more difficult and costly for the hostile party to gain control.

Another variation of the poison pill involves creating a provision that triggers the issuance of additional shares if a certain percentage of ownership is acquired by the hostile bidder. This further dilutes their ownership and increases the overall cost of the takeover.

Poison pill strategies aim to buy the target company's board time to explore alternative options, negotiate better terms, or allow the company to focus on long-term growth without disruption from a hostile takeover attempt. However, poison pills are not always popular among shareholders, as they can sometimes hinder potential value creation or impede legitimate takeover offers.