Citations (2)



The Illusory Protections of the Poison Pill

William J. Carney

Emory University School of Law

Leonard A. Silverstein

McKenna, Long & Aldridge, LLP

Notre Dame Law Review, Vol. 78, No. 4, 2003

This paper describes the operation of the standard preferred stock rights plan with a flip-in feature. Rather than a static look at the initial dilution of a bidder's investment when the flip-in rights become exercisable, we examine a dynamic model, where the bidder then proceeds to acquire the remaining shares of the target corporation in a hostile acquisition. We find surprisingly modest levels of dilution from the standard rights plan, amounting to less than 10% of the total value of the target. This modest dilution is primarily a function of the fact that rights provide a one-time dilution when a bidder's investment in the target is relatively modest - no more than 15% of its stock in most cases. While rights plans can destroy part of this value, they generally do not destroy it all. We explore the reasons for the limits of such plans, and the reasons why no one has deliberately swallowed a pill.

Number of Pages in PDF File: 53

Keywords: takeover, takeover defenses, poison pill, hostile bid

JEL Classification: G34, K22

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Date posted: September 17, 2003  

Suggested Citation

Carney, William J. and Silverstein, Leonard A., The Illusory Protections of the Poison Pill. Notre Dame Law Review, Vol. 78, No. 4, 2003. Available at SSRN: http://ssrn.com/abstract=423512 or http://dx.doi.org/10.2139/ssrn.423512

Contact Information

William J. Carney (Contact Author)
Emory University School of Law ( email )
1301 Clifton Road
Atlanta, GA 30322
United States
404-727-6807 (Phone)
404-727-6820 (Fax)

Leonard A. Silverstein
McKenna, Long & Aldridge, LLP ( email )
Suite 5300
303 Peachtree Street, N.E.
Atlanta, GA 30308
United States
404-527-4390 (Phone)
404-527-4198 (Fax)
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