Flip-Over Pill

Our little tech media company, Yay for Games, LLC, is making money hand over fist. “Blastocyst Blast,” the match-three game we created, is taking the world by storm. It’s gonna be bigger than “Candy Crush” and we, the developers, are reaping big financial rewards. Life is good.

But on the horizon, Tech Giant, Inc. lurks, waiting for the perfect moment to acquire our company and absorb us into its own organizational folds. They’ve already made noise about a hostile takeover if we refuse to let them buy us out in a friendly manner.

Luckily for us, we have a flip-over poison pill provision (also just called a flip-over pill, because brevity is cool) in our company’s bylaws, which should make it easier for us to resist their unwanted financial advances. A flip-over pill basically says that, if a takeover is successful, the shareholders of the acquired firm (Yay for Games) can buy shares in the acquiring firm (Tech Giant) at a deep discount. The point of including this provision is to dissuade any would-be hostile acquirers to rethink their plan, since it could end up causing their stock price to drop so much that the takeover wouldn’t be worth it. Either that, or it would force them to negotiate with Yay for Games to find a solution that was more mutually beneficial.

Something important to keep in mind: even if a negotiated acquisition price is reached, the flip-over poison pill must still be swallowed, so to speak. As soon as Tech Giant makes its takeover bid for Yay for Games, the pill plan kicks in, and shareholders have a predetermined amount of time to go get those shares and try to prevent the acquisition.