poison pill

Definition

Defensive tactics that make hostile takeover by a corporate-raider prohibitively expensive or unattractive. Poison pill takes several forms: (1) provision that makes the firm's all debts immediately payable if the board of directors is changed; (2) distribution of warrants or purchase rights for buying the firm's stock (shares) at a heavy (usually 50 percent) discount when a triggering event (takeover attempt) occurs, thus immediately diluting the raider's ownership interest and voting rights; and/or (3) issuance of a new series of preferred stock (preference shares) that gives stockholders/shareholders (not including the raider) right to redeem them at a hefty premium after a takeover. See also leveraged recapitalization and shark repellant.