The Rise of Anti-Activist Poison Pills
Charles A. Dice Center Working Paper No. 2022-07
47 Pages Posted: 24 Aug 2022 Last revised: 7 Nov 2022
Date Written: November 7, 2022
We provide the first systematic evidence of contractual innovation in the terms of poison pill plans. In response to the increase in hedge fund activism, pills have changed to include anti-activist provisions, such as low trigger thresholds and acting-in-concert provisions. Using unique data on hedge fund views of SEC filings as a proxy for the threat of activists' interventions, we show that hedge fund interest predicts pill adoptions. Moreover, the likelihood of a 13D filing declines after firms adopt anti-activist pills, suggesting that pills are effective in deterring activists. The results are particularly strong for "NOL" pills that due to tax laws have a five percent trigger. Our analysis has implications for understanding the modern dynamics of market discipline of managers in public corporations and evaluating policies that regulate defensive tactics.
Keywords: Poison pills, activism, hedge funds, market for corporate control, takeovers
JEL Classification: G30, G34, K22
Suggested Citation: Suggested Citation