Question

are poison pills good for bad for stockholder's? how do you think acquiring firms are able to get around poison pills?

Answer 1

Solution:

A Poison pill is a provision that allows the target company to use tactics in order to discourage the takeover. This provision can be good or bad for the shareholders.

Good: If this provision is used to get a higher price per share and then existing shareholders will be benefited.

Bad: If this provision is used to stop the takeover even though shareholders are ready for it. Hence it is possible that the management is using this provision only for their benefit and not for the stockholders.

In case of a hostile takeover, the acquiring company will use abusive takeover tactics, and then the target company uses the poison pill provision. This will force the acquiring company to negotiate further with the target company.