A poison pill is a takeover defense used by publicly-traded companies to discourage unwelcome acquisitions by making the stock less attractive to the acquirer. There are a number of ways to achieve this, but two popular poison pills are:
- A flip-in which allows existing shareholders (except the acquirer) to buy more shares at a discount; and
- The flip-over which allows stockholders to buy the acquirer’s shares at a discounted price after the merger.
The poison pill was invented in the early 1980’s as a response to tender-based hostile takeovers, so-called corporate raids and is often used more broadly to describe other types of takeover defenses commonly known as shark repellents.