Flip-In Poison Pill
Categories: Entrepreneur, Company Management, Banking
See: Poison Pill. See: Pacman Defense.
A flip-in poison pill is a strategy designed to protect a company’s shareholders if that company becomes an acquisition or takeover target.
Essentially, a flip-in poison pill provision allows existing shareholders in a company to purchase additional shares at a discount when faced with a takeover by another entity. This sends a message to any would-be hostile acquirers that the company is prepared to defend its shareholders and potentially flood the market with shares, thus making it more financially difficult for the acquirer to gain control of the company.
In order to take over a public company, the wannabe acquirer has to get its mitts on a voting majority of the company’s stock shares. (Often only a third or so of the total shares even cast any vote, so control can be had, often, with just 20-30% of the shares outstanding...or less.) If some entity is making noise about taking over our DIY home tattoo gun business, we can try and make it impossible for them to do so by creating a bunch more shares, and offering them to existing shareholders at a discount. With all those new shares, it’s a lot harder for one person or organization to buy up the 51% of shares needed to take us over.
Organizations can’t just decide to adopt this strategy on a whim. It has to be part of the company’s bylaws prior to the takeover. And even then it doesn’t necessarily mean the company won’t end up in court defending its flip-in poison pill provisions against the wannabe acquirer.
Related or Semi-related Video
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