What is a poison pill strategy?

A poison pill strategy is an anti-takeover tactic used in corporate law that is employed by a company to make itself less attractive to possible acquirers. It is most commonly used to prevent hostile takeovers by making shares of the company more expensive and less desirable for a potential acquirer. In California, this strategy is often employed when a company fears it will be taken over by an acquirer who does not have the best interests of the original shareholders in mind. When a poison pill strategy is used, the company usually issues shares to existing shareholders at a discounted rate. These shares are then sold in return for a payment, usually in the form of a bond, which is then redeemable at a later date at a much higher price. This makes it much more difficult for an acquirer to purchase a majority of the company’s stock. The poison pill strategy also works to protect the interests of existing shareholders by allowing them to buy more shares and thus retain a larger stake in the company, even if an acquirer does manage to buy a majority of the shares. This can be beneficial to the original shareholders who may otherwise lose a large amount of the value of their initial investment if the company is taken over.

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What is a poison pill strategy?

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