People Poison Pill - Explained
What is a People Poison Pill?
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Table of ContentsWhat is a People Poison Pill?How does a People Poison Pill Work?What are the Types of Poison Pill?Academic Research on People Poison Pills
What is a People Poison Pill?
A people pill is a type of poison pill used by target firms as a defense from hostile takeover bids. When a target company uses a people pill, it issues threats to an acquiring company that its entire team of employees and management team will resign in the event of a complete takeover. In the face of this threat, an acquiring company would be left with no choice than to negotiate on friendly terms with the target company. The people poison pill was first used as a defense strategy in 1989, this strategy is used as a way of discouraging a total takeover by an acquiring company.
How does a People Poison Pill Work?
The resignation of the entire team of a target company is not favorable to the acquire after a takeover given that it needs to start putting together a new team from scratch. The new team put together might not be able to effectively run the company and this might cause an unsuccessful takeover. Also, the cost of putting a new team is a factor that most acquiring companies consider. The Borden Corporation, a food company was the first to use the people poison pill as an anti-takeover strategy in the late 1980s. At this time, the strategy was used to demand a fair share of the targets company in the acquisition bid.
What are the Types of Poison Pill?
It is important to know that a people poison pill does not work for all hostile takeovers, especially when the company does not want the keep the existing team of a target company in the first place. Aside from the people poison pill, there are other defense strategies that target companies can use to foil hostile takeovers, the most popular ones are;
- Suicide pill
- Flip-in poison pill
- Flip-over poison pill
- A poison put
- A dead-hand poison pill
Each of the above strategies has its distinct use in an attempt by a target company to foil a hostile takeover. Generally, these anti-takeover strategies are referred to as shark repellents. In a suicide pill, for instance, a target company deliberately goes bankrupt to make itself unattractive to an acquiring company. A flip-in poison pill, on the other hand, allows the existing shareholders of a target company to purchase large shares of the company at a discount as a way of diluting the value of the shares the acquiring company purchases. Any of the above poison pills can be used by target companies when an unwanted takeover bid is submitted. In many cases, the target company will adjust its charter to accommodate the kind of pill it wants to execute. The major goal of a poison pill is to make a target company less attractive to its acquirer.
Academic Research on People Poison Pills