An anti- takeover device used by a company to protect itself from hostile bidders. There are many varieties of poison pills, the most common being the 'flip-over', which guarantees the shareholders of a company targeted for take-over the right to purchase shares in the new, merged entity at below market cost, thereby reducing the raider's gain. (See also Sugar-coated Pill).
a defense against a raider: taking action which makes the company less attractive.
A poison pill is one of the steps corporations can take to thwart hostile takeover attempts. A company employing a poison pill tactic grants shareholders the right to purchase shares below market price. This right is exercised when an unwanted suitor's stake exceeds a certain ratio. The stake in question is reduced, usually discouraging the suitor from trying to further increase its shareholdings in the target firm. Poison pill cases usually involve issuance of equity warrants. Industrial control equipment manufacturer Nireco Corp. is considered the first Japanese firm to employ this type of poison pill. For defense purposes, it granted warrants to all shareholders who were on its March 31 stockholder roster.