poison pill

noun

Definition of poison pill

: a financial tactic or provision used by a company to make an unwanted takeover prohibitively expensive or less desirable

Examples of poison pill in a Sentence

Recent Examples on the Web

The company has since removed Mr. Schnatter from its advertisements and has adopted a poison pill to prevent him from gaining control of the company. — Julie Jargon, WSJ, "Papa John’s Sales Fall for Fourth Consecutive Quarter," 6 Nov. 2018 Ruprecht reacted quickly, initiating a poison pill that stopped Loeb from amassing more shares. — Vicky Ward, Town & Country, "Buyer's Remorse: Inside the Art World's Billion-Dollar Rivalry," 4 Mar. 2015 His challenge is fashioning as clean a bill as possible that does not include poison pills (i.e. stuff conservatives want that would drive away some of his moderates and prevent any Democratic buy-in). — James Hohmann, Washington Post, "The Daily 202: Trump’s family separation policy tests the leadership abilities of Ryan and McConnell," 20 June 2018 Foreign Edition Podcast Foreign Edition Podcast The outlook is troubling largely because of this and other U.S. poison pills. — The Editorial Board, WSJ, "The Nafta Ultimatum Strategy," 3 May 2018 The compromise bill would earmark $23 billion for construction of a border wall, a priority for Trump, and make steep cuts to legal immigration programs, a potential poison pill for Democrats. — Eliza Fawcett, latimes.com, "House postpones vote on a second immigration bill after voting down first," 21 June 2018 The poison pill would end the Medicaid expansion approved by the Legislature in 2013, which covers 680,000 Michiganders with health care, if the federal government fails to approve a waiver within 12 months. — Kathleen Gray, Detroit Free Press, "Provision in Medicaid work bill could end Healthy Michigan program," 8 June 2018 As part of the deal disclosures, Xerox for the first time published the full joint venture agreements—the poison pill. — Shawn Tully, Fortune, "Paper Jam! How Carl Icahn And a Billionaire Partner Blocked Xerox’s Merger with Fujifilm," 21 May 2018 The alternative is to hold fast to the Lighthizer poison pills that Mexico and Canada refuse to accept and settle in for what could be years of combat with a mercantilist Mexican government. — The Editorial Board, WSJ, "A Looming Nafta Debacle," 18 May 2018

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Last Updated

28 Nov 2018

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The first known use of poison pill was in 1983

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More Definitions for poison pill

poison pill

noun

Financial Definition of poison pill

What It Is

A poison pill is a strategy that tries to create a shield against a takeover bid by another company by triggering a new, prohibitive cost that must be paid after the takeover.

How It Works

There are many poison pill strategies that have been used by companies against hostile takeovers and corporate raiders. For example, offering a preferred stock option to current shareholders allows them to exercise their purchase rights at a huge premium to the company, making the cost of the acquisition suddenly unattractive. Another method is to take on a debt that would leave the company overleveraged and potentially unprofitable.

Some companies have created employee stock ownership plans that vest only when the takeover is finalized. In addition to a dilution of the stock value, such employee benefits may result in an employee exodus from the company leaving it without its talented workforce (which is often one of the drivers of the acquisition).

Another example is to offer a series of golden parachutes for company executives. This could also make the takeover of the company prohibitively expensive the buyer had planned to replace the top management.

Finally, one non-financial method of a poison pill is to stagger the election of the board of a company, causing the acquiring company to face a hostile board for a prolonged period of time. In some cases, this delay in gaining control of the board (and therefore the votes necesarry to approve certain key actions) is a sufficient deterrent for a takeover attempt.

An extreme implementation of a poison pill is called a suicide pill.

Why It Matters

Poison pills raise the cost of mergers and acquisitions. At times, they create enough of a disincentive to deter takeover attempts altogether. Companies should be careful, however, in constructing poison pill strategies. As a strategy, poison pills are only effective as a deterrent. When actually put into effect, they often create potentially devastatingly high costs and are usually not in the best long-term interests of the shareholders.

Source: Investing Answers

poison pill

noun