Poison Pill

Definition: A poison pill is a defensive strategy used by a company’s board of directors to prevent or discourage a hostile takeover. It makes the company less attractive to potential acquirers by diluting the value of shares or increasing the cost of acquisition.

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What Is a Poison Pill?

A poison pill is a corporate defense strategy used to discourage or block a hostile takeover. Formally called a "shareholder rights plan," it makes a company prohibitively expensive or unattractive to acquire without the board's approval — giving the board leverage to negotiate or to fend off an unwanted bidder. It is a tool of corporate governance, not a contract term.

How a Poison Pill Works

Purpose and Limits

The board's stated goal is usually to protect shareholders from a coercive or undervalued offer and to preserve negotiating leverage. Poison pills are controversial because they can also entrench management. They are governed by the corporation's governing documents and the corporate law of the state of incorporation, and the board adopting one remains subject to its fiduciary duties to shareholders.

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Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC

Disclaimer: The information and opinions provided are for general educational, informational or entertainment purposes only and should not be construed as legal advice or a substitute for consultation with a qualified attorney. Any information that you read does not create an attorney-client relationship with Barnes Walker, Goethe, Shea & Robinson, PLLC, or any of its attorneys. Because laws, regulations, and court interpretations may change over time, the definitions and explanations provided here may not reflect the most current legal standards. The application of law varies depending on your particular facts and jurisdiction. For advice regarding your specific situation, please contact one of our Florida attorneys for personalized guidance.

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