Poison Pill Strategy

Heard of the Poison Pill Strategy? To be honest, this is the first time I heard of this term. After much research, I found out that this Strategy is a defence strategy that allows existing shareholders rights to purchase additional stocks at a discount.

In short, you can also call it a Shareholders Rights Plan.

Why would any company want to use the Poison Pill Strategy? The purpose is to prevent or discourage hostile takeover attempts. Allowing existing shareholders to purchase additional shares at a discount effectively dilutes the ownership interest of the hostile party.

You may probably read of the news that Elon Musk’s bid to take Twitter private. The offer was $54.20 per share for Twitter which means Twitter is valued at $43 billion. Twitter has adopted the Poison Pill Strategy to buy time.

Twitter Share Price 14 Apr 2022

At this point of writing, Twitter is trading at $45.08 per share. Will the strategy ward off Elon Musk? We shall wait and see.

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