by Business Insider, July 11th, 2011.
Hostile takeovers happen quite often and as tensions run high between the acquiring company and its takeover target, things can get ugly.
A recent report from GovernanceMetrics International (GMI) indicates that the prevalence of ‘poison pills’ used by S&P 500 companies to discourage hostile takeovers declined to 16 percent last year – a significant reduction since 2002, when more than half of companies used this technique.
Since there has been a marked increase in the number of hostile takeovers since the beginning of last year, is it good business strategy to toss out the ‘poison pill?’
‘When trying to avoid a hostile takeover, poison pills remain an effective strategy for buying more time,’ says Paul Downs, a partner at Jones Day and a corporate governance and compliance specialist. ‘The poison pills allow current shareholders (but not the hostile acquirer) to be issued more shares at a discount, which would prohibitively increase the cost of an acquisition. The threat of this can help the company buy more time in determining who is willing to pay up, or for finding alternatives.’ (continue reading… )