Unlocking the Power of Poison Pill Strategy

beta in investing explained

Poison pill strategy is a defensive tactic, designed to block an investor from accumulating a majority stake in a company and taking control of that company.

The strategy involves making the company a less desirable or more costly acquisition target, thereby deterring potential hostile takeovers.

Takeovers are fairly common in the business world, where Large companies tend to take over smaller ones.

When a purchasing organization obtains a certain percentage of a company's shares, a poison pill is "triggered." Traditionally, poison pills are triggered when a hostile buyer obtains between 10% to 20% of the shares.

In 2012 Netflix adopted a Poison Pill to fend off Carl Icahn from effecting a hostile takeover. Upon learning that Icahn had acquired a 10% stake in the company, Netflix immediately went on the defensive.

Poison pills can be very effective in discouraging a purchase, but this strategy is not completely guaranteed to succeed, as a poison pill will not necessarily prevent the acquisition of the corporation if the acquirer is persistent and there can be legal and financial implications to consider.

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