{"id":967245,"date":"2024-12-09T13:08:44","date_gmt":"2024-12-09T11:08:44","guid":{"rendered":"https:\/\/www.etoro.com\/?page_id=967245"},"modified":"2024-12-09T13:08:45","modified_gmt":"2024-12-09T11:08:45","slug":"the-corporate-power-of-poison-pills","status":"publish","type":"page","link":"https:\/\/www.etoro.com\/en-us\/academy\/videos\/the-corporate-power-of-poison-pills\/","title":{"rendered":"The Corporate Power of Poison Pills"},"content":{"rendered":"\n

Description<\/h2>
Facing a takeover, a company may opt to adopt a “poison pill plan.” Poison pill plans tend to be effective ways to ward off parties seeking to overtake.<\/div><\/div>

Transcript<\/h2>
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Headlines recently broke about Elon Musk vying to buy Twitter for about 54 per share – well above Twitter’s current stock price.<\/p>\n\n\n\n

Twitter’s board of directors adopted a poison pill plan which, taken out of context, sounds a bit dramatic.<\/p>\n\n\n\n

People – seriously?<\/p>\n\n\n\n

It was just a tweet.<\/p>\n\n\n\n

So what is a poison pill and why are people in suits talking about them? <\/p>\n\n\n\n

Sometimes companies buy other companies – they stage a takeover.<\/p>\n\n\n\n

If that takeover is negotiated with the company’s board of directors, a company\u2019s sold relatively drama-free, but if not it’s a hostile takeover.<\/p>\n\n\n\n

Now companies might reject a takeover for any variety of reasons, even if the deal appears profitable and could apparently benefit shareholders.<\/p>\n\n\n\n

It’s possible the takeover could fail – that’s a bad look.<\/p>\n\n\n\n

There’s also other considerations like how employees will be affected or, in Twitter’s case, the user base – the Tweeters!<\/p>\n\n\n\n

Protect the Tweeters!<\/p>\n\n\n\n

Whatever it may be, one option companies have is a poison pill plan.<\/p>\n\n\n\n

There’s no cyanide – a poison pill plan is pretty transactional:<\/p>\n\n\n\n

If an investor, the one taking over the company, reaches a certain threshold of ownership – in Elon\u2019s case, 15% – companies give their shareholders the right to purchase additional shares at a discount.<\/p>\n\n\n\n

If Elon were to hit that 15%, Twitter would offer its shareholders the option to pay 210 dollars for 420 dollars worth of newly issued Twitter stock at the current market price.<\/p>\n\n\n\n

With a deal like that, shareholders are bound to load up.<\/p>\n\n\n\n

As more shares are issued, Elon’s ownership percentage would drop and to maintain that percentage, more money would be required.<\/p>\n\n\n\n

Now his takeover starts to feel like taking a poison pill.<\/p>\n\n\n\n

And people don’t talk about this: although the poison kills you there’s also like a really gassy bloated uncomfortable part.<\/p>\n\n\n\n

You don’t want that.<\/p>\n\n\n\n

The mere threat of a poison pill tends to be an effective defence.<\/p>\n\n\n\n

The plans are actually rarely triggered, which can be a good thing:<\/p>\n\n\n\n

Issuing more shares can dilute all of the other shareholders\u2019 stakes, too requiring everyone to put more money in to maintain their stake.<\/p>\n\n\n\n

Poison pill plans actually aren’t that unusual – about two percent of S&P 500 companies had poison pill plans as of April 2020. <\/p>\n\n\n\n

In 2012, Netflix adopted a poison pill plan to fend off activist investor Carl Icahn who was potentially angling to pawn Netflix off to one of the tech giants.<\/p>\n\n\n\n

Recently, Kohl\u2019s joined the pill gang after some buyout offers, which they said (quote): \u201cdid not adequately reflect Kohl\u2019s future growth\u201d, reports Reuters.<\/p>\n\n\n\n

Poison pill plans aren’t exactly spy movie levels of thrilling but they are effective tools in a company’s arsenal when facing a buyout that isn’t quite at the corner of happy and healthy.<\/p>\n\n\n\n

Oh, that’s just iron.<\/p>\n\n\n\n

This is a poison pill.<\/p>\n\n\n\n

Oh wait, this is the same one\u2026<\/p>\n<\/div>