shareholder rights plan

poison pill, Also known as a shareholder rights plan.

In the context of takeovers, action taken by the target to make itself unattractive to a bidder or potential bidder. Such action is restricted under the UK City Code on Takeovers and Mergers (Rule 21) and is more common in the US.

+ poison pill, aka shareholder rights plan

USA

poison pill, Also known as a shareholder rights plan.

A poison pill is a defensive measure used by public companies to frustrate hostile takeover attempts by third parties. A corporation adopts a poison pill by executing a shareholder rights agreement (also known as a rights plan). Under the rights agreement, shareholders receive "rights" (similar to warrants) to purchase the corporation's stock at a substantial discount when the plan is triggered. Usually these rights are distributed (or triggered) when a third party purchases a certain amount of the target company's stock (commonly 15% or 20%). Once the poison pill is triggered, the acquisition can become very expensive for the prospective acquiror and any target company stock previously purchased becomes significantly diluted. The most common types of rights plans are "flip-in" and "flip-over" plans. Flip-in plans give the target company's shareholders the right to purchase additional target company stock (typically on a one-for-one basis) at the discounted price. Flip-over plans give the target company's shareholders the right to purchase stock of the acquiring company at a discounted price.

For more information see Practice Note, Poison Pills: Defending Against Takeovers and Protecting NOLs (www.practicallaw.com/3-386-0340).