Poison Pill (M&A Glossary)

Summary

A takeover defense strategy where a target makes a hostile takeover much more expensive for a potential hostile buyer. Commonly these are provisions found in a company’s constituent documents or in a shareholder rights agreement, and are triggered by specific events and takeover attempts. Most varieties of the poison pill give current shareholders (other than the hostile triggering shareholder) the right to buy stock at a discounted price when a specified triggering event occurs. This dilutes the voting rights and value of the shares acquired in a hostile takeover. If successful, a poison pill is called a show stopper.