Business

What is Poison Pill Strategy in Businessworld?

To stop Elon Musk from acquiring Twitter, the board of directors activated the poison pill strategy; a term that much may not be aware of 

In the past few weeks, things have been chaotic at the headquarters of Twitter because Elon Musk, the world’s richest man, tried to acquire the social media platform and became successful in doing it. At the time of drafting this article, Musk is the brand-new owner of Twitter. However, this article is not about how Musk gained Twitter.

During the Twitter-Musk saga, the board of directors tried to stop Musk by activating the poison pill strategy. This article is about the poison pill; a term that is not known by many, but at the moment, it is one of the most trending terms in the world.

What is the importance of this article?

The term poison pill has recently gained massive popularity, but over the years, several companies have used the strategy to thwart unwanted or hostile takeovers. Therefore, people must know the strategy because the sale or takeover of a particular company can influence their investments.

What is a poison pill?

The term poison pill was coined in the 1980s that acts as a defensive strategy or a tool to stop a hostile or unwanted takeover of a company. In simple terms, it is called the shareholder rights plan that allows the shareholders of a company to stop a particular investor from buying a majority of that company’s shares.

How?

The strategy enables the shareholders of a company to purchase additional shares of that company at a discounted price. In this manner, the value of each share also gets diluted. All the shareholders of a company are allowed to purchase up to 15 per cent of the company’s shares.

For example, if A has five per cent of the shares, he can purchase another 10 per cent of the company’s shares at a discounted price. Similarly, even B and C can purchase up to 15 per cent of the company’s shares. This strategy is applied to stop an outsider from acquiring a company’s majority of shares (Let’s say 30 per cent or 50 per cent).

Poison pill at Twitter and other companies

As mentioned in the strapline, shareholders at Twitter tried to stop Musk by activating the poison pill strategy. However, things did not work in the favour of the shareholders. Although in the past, companies such as Netflix and Papa John’s have successfully defended themselves against hostile takeovers with the help of the poison pill strategy.

Rohit Chatterjee

An alumnus of the Indian Institute of Journalism and New Media, Rohit Chatterjee is a bona fide moto-enthusiast who has worked with several media houses in his brief career. Chatterjee mostly writes features and news articles related to automobiles and motorsports. When not working, he is found on the interstate clocking over 100kmph on his NS200!
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