What Exactly is a "Poison Pill" and How Does it Apply to the Stock Market?
Warning: mysqli_query(): Empty query in
/home/manuel/public_html/subpage.php on line
8480
Warning: mysqli_fetch_row() expects parameter 1 to be mysqli_result, boolean given in
/home/manuel/public_html/subpage.php on line
8482
You may have been watching CNBC one day and heard the term "poison pill" being discussed. You have probably figured out that it somehow involves one company taking over another, but you aren't sure as to what it exactly means.
The term "poison pill" goes back to World War II. Nazi spies would carry "poison pills" around with them. If they were ever captured, they would ingest the "poison pill" (usually cyanide) and kill themselves rather than being interrogated. The enemy would capture the spies, hoping to extract some helpful information - instead, the spies killed themselves and no helpful information was offered up.
So how does this relate to the stock market?
Let's say that we have two companies. Big Company, Inc. and Smaller Company, Inc. Big Company has announced plans to acquire Small Company, Inc. via a hostile takeover. Small Company, Inc. rejects the bid, and tells Big Company, Inc. that it doesn't want to be sold.
Big Company, Inc. states publicly that it is contemplating a higher bid and will actively look for ways to make this deal go through, including soliciting support of shareholders directly and looking to make changes to the Board of Directors.
Small Company, Inc. wants to make it as difficult as possible for Big Company, Inc. to acquire them, so they look to make use of "poison pills". A "poison pill" is a way for the smaller company to make it as difficult as possible (and as expensive as possible) for the large company to acquire them. "Poison pills" would include:
-Small Company says that its stock options will immediately vest if they are taken over
-Small Company increases the amount of debt that it has
-Small Company adds to its charter a stipulation that will give their shareholders the right to sell at an increased price if an outside company or person acquires a certain % of the company (usually one third).
-Small Company purchases a company of its own, thus complicating any deal for Big Company, Inc.
There are a number of other "poison pills" that can be used as well.
Basically the "poison pills" are used when one company does not want to be acquired by another, and makes it as difficult and expensive as possible for the bidding company to acquire them. That's a "poison pill".
Warning: mysqli_fetch_row() expects parameter 1 to be mysqli_result, boolean given in
/home/manuel/public_html/subpage.php on line
8527
Filed under:
Stock Market Education |
Warning: mysqli_stmt_bind_param() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14707
Warning: mysqli_stmt_execute() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14708
Warning: mysqli_stmt_get_result() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14709
Warning: mysqli_num_rows() expects parameter 1 to be mysqli_result, null given in
/home/manuel/public_html/subpage.php on line
14711
Warning: mysqli_stmt_bind_param() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14730
Warning: mysqli_stmt_execute() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14731
Warning: mysqli_stmt_get_result() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14732
Warning: mysqli_fetch_row() expects parameter 1 to be mysqli_result, null given in
/home/manuel/public_html/subpage.php on line
14735
Warning: mysqli_stmt_bind_param() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14738
Warning: mysqli_stmt_execute() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14739
Warning: mysqli_stmt_get_result() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14740
Warning: mysqli_fetch_row() expects parameter 1 to be mysqli_result, null given in
/home/manuel/public_html/subpage.php on line
14742
Warning: mysqli_stmt_bind_param() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14762
Warning: mysqli_stmt_execute() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14763
Warning: mysqli_stmt_get_result() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14764
Warning: mysqli_fetch_row() expects parameter 1 to be mysqli_result, null given in
/home/manuel/public_html/subpage.php on line
14767
Warning: mysqli_stmt_bind_param() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14770
Warning: mysqli_stmt_execute() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14771
Warning: mysqli_stmt_get_result() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14772
Warning: mysqli_fetch_row() expects parameter 1 to be mysqli_result, null given in
/home/manuel/public_html/subpage.php on line
14774
Warning: mysqli_stmt_bind_param() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14793
Warning: mysqli_stmt_execute() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14794
Warning: mysqli_stmt_get_result() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14795
Warning: mysqli_fetch_row() expects parameter 1 to be mysqli_result, null given in
/home/manuel/public_html/subpage.php on line
14798
Warning: mysqli_stmt_bind_param() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14801
Warning: mysqli_stmt_execute() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14802
Warning: mysqli_stmt_get_result() expects parameter 1 to be mysqli_stmt, boolean given in
/home/manuel/public_html/subpage.php on line
14803
Warning: mysqli_fetch_row() expects parameter 1 to be mysqli_result, null given in
/home/manuel/public_html/subpage.php on line
14805
