An article in today’s Financial Times (located here) highlights the gradual but ongoing disappearance of the corporate poison pill. (A “poison pill” is – or was – a common anti-takeover mechanism that gives a company’s shareholders rights to purchase company stock when a hostile bidder acquires a certain percentage of that company’s stock in a takeover attempt. When the rights are exercised, the target company stock becomes highly diluted, thus making the bidder’s already-acquired stock worth significantly less than its original purchase price.)
The problem with the poison pill, from a shareholder’s perspective, is that it allows a company’s board of directors to block a corporate takeover that may be in that shareholder’s best economic interest. For example, a poison pill might be used by an unscrupulous board of directors that seeks to entrench itself – despite seeing the economic efficiencies of its company being acquired.
Not surprisingly, poison pills are not popular with shareholder rights groups. And such groups have been highly effective recently at dismantling poison pills at many large public companies. According to the Financial Times, “[o]nly 28 per cent of S&P 1,500 companies had a poison pill in place last year, down from 43 per cent in the previous two years[.]”
This trend goes hand in hand with the recent heightened interest in shareholder rights of all kinds. While increasingly shareholder-friendly lawmakers work hard toward implementing a broad and coherent legislative effort protecting shareholder rights, the dismantling of anti-takeover measures at individual corporations represents a separate – but equally appropriate and effective – effort by corporate governance reform activists to win back corporations for their owners.
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