TPX - What Is a Poison Pill and Why Have So Many Companies Adopted Them Recently?
With equity prices crashing in recent weeks, much of corporate America has gone on the defensive, pulling guidance, slashing costs, and seeking ways to add liquidity. For some of the most vulnerable, it has also led to a resurgence in one of the principle ways companies protect themselves from hostile takeover attempts.
The last month has seen an uptick in the adoption of so-called "poison pills," more formerly known as limited duration stockholder rights agreements. While specifics vary from company to company, the agreements are designed to prevent an activist or unwanted potential acquirer from gaining control during a time of weakness. According to Bloomberg data, poison pills are being added at the fastest pace since 2009.
At its core, a poison pill, as the name suggests, is simply designed to make it more difficult for a hostile acquirer to swallow its target. Mergers and activist proposals typically require majority shareholder approval, so poison pills try to make it more difficult for the hostile party to acquire anything close to a majority stake.