Hard to Swallow: Poison Pills On the Decline

Summary

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Poison pills are provisions in a company's operating documents designed to make hostile takeovers expensive. Poison pills are often structured to include the issuing of new shares, further diluting the stake held by a hostile bidder. According to research firm TrueCourse Inc, 29 companies took steps to dismantle their poison pill defenses in 2003 and only 18 did so in 2002. The need to maintain a clean corporate image in the wake of recent scandals is one reason that poison pills are falling out of favor. Analysts have contended that poison pills can hurt a stock's performance by giving the impression that a board is unwilling to consider a takeover bid at any price. In addition to being a defense, poison pills can also be used as a bargaining chip. A board can always remove the poison pill provision after receiving a high enough bid from a suitor.

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Hard to Swallow: Poison Pills On the Decline

A number of companies have recently dismantled takeover defense mechanisms commonly known as poison pills. In February 2004, Circuit City Stores Inc., Goodyear Tire & Rubber Co., FirstEnergy Corp., PG&E Corp., and Raytheon Co. all took steps to ...

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