61 Pages Posted: 20 Sep 2002
The poison pill is the most powerful defense against hostile takeovers. It can render a company takeover-proof, or nearly so. Efforts at developing an antidote have focused largely on shareholder-adopted bylaws, but the legality of such proposals has been questioned by many. In any event, shareholder-adopted bylaws have not been very successful in eliminating poison pills thus far. In order to effect takeovers, hostile bidders cannot rely on the courts or the target company's shareholders; they can rely only on themselves. In this article, I propose a strategy for hostile bidders to counteract the poison pill and to consummate hostile takeovers without redemption of the poison pill rights. The proposed strategy involves a series of coordinated tender offers: an initial offer to trigger the poison pill rights, offering little or no consideration; and a subsequent offer in which the fully diluted value paid to all shareholders after the rights have been exercised. This antidote strategy allows the hostile bidder to respond to management's just say no defense with a just do it offense of triggering the poison pill without ingesting its economic poison. Moreover, it does not allow the hostile bidder to evade the legitimate, salutary effects of the poison pill. The antidote strategy merely seeks to restore to shareholders a right that should have been deemed inalienable: the right to sell their shares without management's consent.
Keywords: poison pill, takeovers, corporate governance
JEL Classification: K22
Suggested Citation: Suggested Citation