Dead Man or Dead Hand? New Poison Pills in Debt

Abstract

“Poison puts” are contractual clauses in debt arrangements that work similar to poison pills – they are triggered on a certain pre-defined moment and allow the debtholder to claim repayment of the debt, much to the disadvantage of the company. This provides a chilling effect on shareholder activism and potential takeover bids. Recent Delaware case-law suggests that the most extreme, ‘dead hand’ version of such clauses might violate directors’ fiduciary duties.

This short article develops some initial thoughts on the phenomenon and evaluates how the new poison pills would be handled under European takeover and corporate law.

Keywords: poison puts, proxy puts, poison pills, takeovers, fiduciary duty, shareholder activism

JEL Classification: K22, G34