Financial Accounting Blog

Saturday, March 27, 2004

Posion Pills. The so called poison pills are generally used to make a hostile acquisition more expensive, either by triggering the issuance of new shares or by allowing investors to sell shares at a premium. However, recently many shareholders are rejecting the idea of poison pills because most believe that this gives too much power to boards as they have the ultimate right to trigger a pill without shareholder approval. A few years ago, Disney announced a decision to abolish the poison pill and many companies are following suit.
Since January, several companies have moved to abolish their poison pills, including Raytheon, Circuit City Stores, FirstEnergy, PG&E and Goodyear. However, John Keefer, partner at corporate law firm King & Spalding, believes it would be a mistake for companies with poison pills in place to scrap them. "Although there has never been a case where a poison pill has been triggered, they can deter someone from making a creeping takeover without paying a premium."