Poison Pill

Oh Romeo Romeo, wherefore art thou? Ack! Oohf. Well if you can’t have me, nobody can have me. Pill. Glug. Dead. Dead.

That’s poison pill, a la Romeo and Juliet, and the corporate version isn’t all that different. In fact, there are really 2 flavors of poison pills. Consider the first in a Flintstone chewable, called flip-ins, which allow current shareholders to buy a ton more shares at a big discount to where the shares are currently trading.

Like...if the shares are at $40, each current shareholder is allowed to buy 5 shares for $10 each for each share they currently own. This flip-in process dilutes the company dramatically, making it harder for an outside takeover soldier to come in and just buy the company.

So that’s a flip IN. The non-chewable Flintstone flavor, that you have to actually swallow is called a flip over, which comes as a mandate from the board allowing current shareholders to buy the shares of the acquirer after the merger at a big discount.

It basically destroys enormous value in the combined company, making it taste like a bitter moth to a hungry bat. The basic idea in these poison pill defense strategies against hostile takeovers came from the junk bond era in the 80s, when cheap, high-risk capital was liquidly, easily available almost anywhere and companies felt vulnerable to short-term, quick-buck Wall Street sharpies, who looked great in a dark suit, and usually had awesome hair.

For details, carefully watch Wall Street, the first one, the good one, with Michael Douglas...and, uh...the hair.