What is a shareholder rights plan?

A shareholder rights plan, also known as a “poison pill”, is a tool used in corporate law in New Mexico to discourage takeovers or hostile acquisitions of companies. This type of plan is most frequently used by the board of directors of a company to make it more difficult for a potential buyer to acquire a controlling interest in the company. When a hostile takeover or acquisition is attempted, the board of directors of the target company can implement a shareholder rights plan, which gives shareholders, such as bondholders and other investors, the right to purchase additional equity in the company at a steep discount. By doing this, the target company can decrease the value of the hostile acquirers’ stake, making it more difficult for them to gain a controlling interest. There are other defensive measures that can be taken by the board of directors of the target company in New Mexico, such as instituting a “lock-up” agreement, which ties up a large portion of the company’s shares, or a “white knight” situation, where the board of directors of the target company cours a friendly third party to acquire the company instead. However, shareholder rights plans are popular in New Mexico because they are a fast, inexpensive, and effective way to protect the company’s interests from hostile takeovers or acquisitions.

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What is a shareholder rights plan?

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