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Discussion Question:

Poison Pill is an anti-takeover strategy, which is practiced by a company to create protection against hostile takeover. The target company may adopt different poison pill techniques for making the cost of acquisition suddenly unattractive for hostile bidder. In other words, the target company tries to make its stock less attractive to the acquirer company. For example, the target company can take on extra debt to depict itself as overleveraged and potentially riskier. There are certain other techniques a company can adopt to exercise the poison pill strategy. You are required to discuss any two techniques (other than the one mentioned in above example) along with conceptual rationale.

Note: Here conceptual rationale means that you need to elaborate how your mentioned techniques would help the target company to avoid hostile takeover.

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Replies to This Discussion

hmm ok thnx

A strategy used by corporations to discourage hostile takeovers. With a poison pill, the target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills:

1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount.

2. A "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger.

There are many techniques, but famous are 5

Common types of poison pills

pac man would also be one of these techniques na???

ksi nay abi tk pura gdb banaya b hai k nai??????????????

tehrim I am afraid you are wrong

Pac Man is also the type of anti-takeover (defensive) strategy.

There are certain other techniques a company can adopt to exercise the poison pill strategy. You are required to discuss any two techniques (other than the one mentioned in above example) along with conceptual rationale.

Techniques for exercising the poison pill strategy Pacman is not a type of poison pill 
strategy

Pacman is another concept

Poison Pill Provisions

These defensive techniques have evolved over time, and while this strategy may take several forms, the most common structures include:

  • Preferred Stock Plans:  this is the typical preferred stock, which is registered with the SEC, and is paid as a dividend to common shareholders. This preferred stock has an important feature:  it is convertible to common stock only after the takeover is completed.  This strategy both dilutes the ownership of the acquiring company (which is highly undesirable for the acquirer) as well as increases the cost of the merger.
  • Flip-Over Plans:  this allows shareholders to purchase shares of common stock in the new company at a substantial discount after the merger.  While this approach is simpler to implement than a preferred stock plan, it does not prevent a company from purchasing a controlling share of the target.
  • Flip-In Plans:  this strategy provides shareholders of the target company with the right to purchase additional stock in the target company at substantial discounts.  The right to purchase stock occurs before the merger is finalized, and the provision is usually triggered when the acquirer owns greater than a 20% share of the target's stock.
  • Back-End Plans:  this approach provides shareholders of the target company with the right to cash or debt securities at a price established by the company's Board of Directors.  By doing so, the target company has essentially established an above-market selling price for the company.
  • Poison Puts:  this is a bond that allows investors to cash in the security before it matures, if the target company is engaged in a hostile takeover attempt.  The poison put places pressure on the acquiring company to raise substantial sums of money to pay off the owners of the puts.

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