Like when you sleep wrong and cut off circulation to your hand, and when you finally wake up, you can’t feel it and you can’t move it, and just have to flop it around as dead weight until the blood comes back. Dead. Hand.
In financial terms, imagine a similar thing happening to the voting power of your stock. Suddenly it becomes virtually useless. That's a dead hand provision. Like, if something bad happens, your vote ain't worth much.
When would you use such a thing? Hostile takeovers. And there exist myriad techniques designed to defend against them. They are called poison pills. Yes, See: Poison Pill. The deadhand provision represents a specific type of poison pill.
We know. This all sounds very last season of Breaking Bad...like someone's carrying a vial of ricin in a cigarette pack.
But poison pills are ways to keep someone from launching a hostile takeover of your company. In the dead hand provision, when someone acquires a large chunk of stock angling for a takeover of the company you thought you controlled, the firm issues a bunch of new stock to other shareholders. Suddenly, the stock held by the potential takeover artists isn't as influential as it was before...it has been massively diluted. Now with a smaller total percentage ownership of the company, it's much more difficult for the hostile takeover to move forward, because there's so much more stock that needs to be purchased to buy a controlling stake. Dead hand provisions usually accompany the distribution of t-shirts that say, "Neener squared."
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Finance: What is a poison pill?4 Views
Finance allah shmoop what is a poison pill O romeo
romeo Wherefore out the ac Well if you can't have
me nobody can have me pill lug dead dead alright
that's poison pill allah romeo and juliet and performed by
your friends here and the corporate version Well it isn't
all that different In fact there are really two flavors
of poison pill flintstones chewable lt's called flip ins which
allow current shareholders to buy a ton more shares at
a big discount toe where their shares are currently trading
flippen like if the shares are at forty bucks each
current shareholder than gets allowed to buy five shares for
ten bucks each for each share that they currently own
and have owned for the last in a year About
that would be a flipping well this flip in process
dilutes the company dramatically making it harder for an outside
takeover soldier to come in and you know just buy
the company that's a flip in the non chewable flintstone
flavor that you have to actually swallow is called ah
flip over which comes is a mandate from the board
allowing current shareholders to buy the shares of the acquirer
After the merger at a big discount it basically destroys
enormous value in the combined company making It tastes like
a bitter moth to ah hungry bat so you know
he spits it out The basic idea in these poison
pill defense strategies is to deal with hostile takeovers And
a lot of those came during the junk bond era
in the nineteen eighties when cheap high risk capital was
liquid Lee easily available almost anywhere and companies felt vulnerable
to short term quick buck wall street sharpies who looked
great in a dark suit and usually had awesome hair
So yeah people for details carefully watch wall street the
first one the good one the one with michael douglas
when he still had hair and what you don't really 00:01:54.212 --> [endTime] hear there is he said Shmoop is good yeah
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