How is a poison pill even legal? You're effectively stealing the value of a shareholders share of the business, whilst selling preferential treatment to other shareholders.
All the shareholders agreed to it when they originally purchased their shares, if you acquired you shares you knew that the policy was in place. It’s not an ambush.
No one has ever activated a poison pill because it’s financial suicide. The company will not survive it. Sure, it prevents the takeover, but all stock value plummets making it a business not worth investing in. That “half off” discount will go to everyone, because you’re doubling the total number of stocks, making it plummet, and new investors lose confidence. If you don’t want people to buy your business, stay private. Look at Musk and Twitter. Musk is offering over $50/share The actual price is $45. 1/2 off sale is $22.50. Do you honestly think the stock is going to hold at $45? No, it automatically loses value. If the stock doesn’t retain more than 60% of its value at $45, then Musk will basically get the 1/2 value to. Remember, Musk is asking OVER the current value. The poison pill only works against people trying to take over at market value.
But...wouldn't this also dilute others shareholders's value? The value of company remains the same but with more shares, this would result in the the decline in the overall stock price.
This was excellent!!! A question though. If The poison pill has never been activated since it's introduction in 1982, what methods have been used PE firms and Hedge Funds for Hostile take overs since then?
So there will be a discrimination between the existing (small) shareholders and the acquiring (large) shareholder. And that's ok? Could the acquiring shareholder protest?
I'd like to ask what happens to the market price after a poison pill is activated? I'd assume (all other things equal lol) the market price will drop because market cap should hold constant - no reason the company suddenly became more valuable by the poison pill alone. and how would that affect existing shareholders' stakes? we know the company's gained some cash, the guy attempting the takeover got diluted (plus a financial loss if the price drops), but I'm not sure I've seen anyone explain the aftermath for current shareholders
i have the same question. i’m very confused. say in this example i held 10/1000 shares. 30*10 = 300 dollar portfolio and 10/1000 is 1% in the company. 1000 outstanding shares at 30 dollars a share means market cap is 30,000. i’m given the option to buy 10 more shares at 15 a piece. 150 total. now i own 20/1800 shares, 1.11% of the company now my portfolio is worth 333.33 dollars (1.1111% of the constant market cap of 30,000). why would i buy the shares for 150 dollars just to increase my portfolio by 33.33 dollars. like you said, the value of the company doesn’t change. what am i missing??
How does the person who bought 20% of the company, who is also now a stakeholder, not get the option to ALSO buy stock at a discount. And making more shares means ALL shares will go down. It's called market cap. You can dish out 2x more outstanding shares and think the shares will still be worth $30 bucks after that.
If I was one of the “others” and had 190 shares before the pill, and the firm offered me an additional 190 that I exercised, I’d have 380/1800 or 21% afterwards. Could that be possible or would you only be offered 10 at half price (200 for 20% ownership - 190 currently own)?
I think it'd also depend on your intentions, let's say now you have 21.1% ownership (380/1800), do you want to acquire the firm? if yes maybe another 'poison pill' might be activated. On the other hand, as the other investor hit the 20% and you have 19%, you might be offered less shares so that you do not go past the 20% threshold.
I really admire your work. Could i ask where do the new shares come from ? and how can this afffect the market price ? like suddenly price of stock on exchange fall to half its value in this case from 30 to 15$. Thanks
there's a poison pill threat activation in a stock i own LLAP... they build satellites and lockhead martin wants to buy them out but LLAP doesn't want it. Can this be advantageous in anyway for me besides the stock being bough at half price? Like an overall inflated price because of a new agreement? what normally happens after a situation like this? I wish you do a follow up video with typical results or outcomes...
Since the value of the firm is unaffected (unchanged) AND the number of shares has increased the, the price (market value) per share will naturally decline.
Is the poison pill evergreen? Like, once it has happened once and the initial purchaser has been diluted, can it be triggered again if the original purchaser (or whomever else) once again exceeds 20%?
Could this have a cascading effect? If someone is at 18% when someone else activates the 20% threshold and the flood of new shares pushes the second person to 20% would it activate again?
One thing I do not understand. 800 shares cannot generate another 800 new shares even if all 800 rights are exercised, because there is no anther 800 shares outstanding. If all 800 shares owns by 800 persons with one right to buy extra share at 15 dollar, but there is no another 800 shares on the marked to buy. Can someone explain it? In my point of view, after the Pill is activated, max. 400 more shares are generated. 200/1400=14.28%. Of course the conclusion is unchanged, that is poison pill is antitakeover.
Dayat Ahmad is correct but there is a lot more going on. Shares are not "magically created" because the pill has been triggered. The video did not get too deep into this either. The number of total shares of a company (all of them: common stock, preferred stock, different classes of stock, etc) all must be stated in the company's Articles of Incorporation (or Certificate of Incorporation, depending on where they are incorporated). What the company can also do, is have "Blank Check Shares" integrated in their Articles (which has to have been approved by their shareholders when it was introduced), but they will specify X amount of these Blank Check shares, for example, 1,000 blank check shares. The cool thing about the blank checks is that once they have been approved by the shareholders and integrated in the Articles, they have NO CLASSIFICATION, they are not common stock, not preferred, etc. They are "blank." The board of directors decides WHEN and on WHAT TERMS, the company is going to issue shares. Therefore, once the blank checks are in place, and when the poison pill has been triggered and the shareholders exercise their "right" then the board can issue new shares from the blank check reserve and characterize them accordingly as, new common stock, for example.
@@johnny_kayy Help me understand this because I have little knowledge of corporate finance. So if a company's Articles of Incorporation specify a set number of shares, you are saying that a significant fraction of these shares are purposely held at reserve and not active and thus not classified as outstanding shares? For example, a company can have one million shares total, and half of them are internally held and not outstanding, and the former shares can be activated by a poison pill, upon that instance they become outstanding?
@@RK831 when we are making the articles you can give the total no. Of share you can issue throughout the lifetime of the company (at fv, like 1million shares of 10$) now what you can do is issue only 5 million to the shareholders. Your outstanding capital is 5mil which is reflected in balance sheet and you can issue another 5million shares as and when needed. These rules change from country to country so you should probably read up the accounting standards of your country.
cant you just purchase more stock after activation, or does the cycle repeat every-time someone unwanted gets 20%. Also what if i was owner of multiple corporations, and i would have all of them purchase 19% share into the company, then the poison pill wont be activated due no one person having more than 20% however, lets say i have 3 corporations purchasing 19% then i would control 57% making me major shareholder. Is this a way to bypass the poison pill? Thanks for the video!
What if mutliple investors/companies working together or multiple companies owned by one owner buys shares, so on paper no hostile company/investor owns 20%. or more, Is this possible?
can't I bypass the poison pill by having other people hold shares for me? If I have 19 shares and my friend has 19 shares we both own the company and can do what we want. Well, I guess I need one more friend but the point is made.
There is a theory in M&A law called the "Group Theory" which came from the GAF Corporation v. Milstein case in 1967. Basically, the same scenario in your hypothetical. Poison pill is a "defense" for hostile takeovers. Takeovers/Hostile Tender Offers must comply with the Williams Act. In short, if you acquire 5% of more and want to "influence" aka takeover the company, then you must file a 13D with the SEC and the Company, within 10 days. In the Milstein case, a few people had LESS THAN 5% individually, but together, they owned about 11% of the company and the court said, the rule applies to "individuals or a GROUP" and since as a group they were over the limit, they had to file a 13D. Remember, that the case above was about compliance with 13D of the Williams Act. However, since the Williams Act and Hostile Takeovers work hand-in-hand, most of the times, when companies draft their poison pill provisions to implement them in the Articles of Incorporation, they will use the same Group Theory as above to eliminate that issue. However, KNOWING WHO is working together, is another question. But that issue is somewhat resolved because to the Williams Act.
@@sarimkamal5649Thanks for the reply. One, I can't believe you can simply "MAKE" more shares. I can understand doing a split but making more of what should be a finite resource after going public seems like suicide. This is going to allow shareholders the option of either doubling down or taking a loose on their positions (i don't mean options). I also can't understand how this can work while restricting the entity that's attempting the hostile take over to NOT have the right to purchase those shares. It seems like a mechanism that should be illegal. The only way this should be possible is if purchasing shares requires you agree to the poison pill mechanism before buying in.
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Who is here after Elon musk's hostile takeover of twitter????
of course 😂
Lmao
The board isn’t going to activate it though, Elon could just immediately sell his shares and actually bag a profit.
So me 😂😂😂
Who is Elon Musk!?
This video is about to blow up :)
As someone else already said, best explanation I have come across so far! Well done!
Thank you!
Great explanation ! Very clear picture of how poison pill work and what are the effects! Thank you so much.
Finally i understand poison pill after watching your video. Clarify it clearly and thank you so much
Fantastic. Thanks for watching!
I was looking for example to understand it better. Thank you so much, I am able to understand it now!
Such a great explanation! I am so happy that I found that video :) It saved me a lot of time!
Glad it helped!
Now I understand more about Elon Musk's AND Twatter's move. I'm sure Elon and his team have foreseen this move. The future will be interesting.
How is a poison pill even legal? You're effectively stealing the value of a shareholders share of the business, whilst selling preferential treatment to other shareholders.
Well said
All the shareholders agreed to it when they originally purchased their shares, if you acquired you shares you knew that the policy was in place. It’s not an ambush.
No one has ever activated a poison pill because it’s financial suicide. The company will not survive it. Sure, it prevents the takeover, but all stock value plummets making it a business not worth investing in.
That “half off” discount will go to everyone, because you’re doubling the total number of stocks, making it plummet, and new investors lose confidence.
If you don’t want people to buy your business, stay private.
Look at Musk and Twitter.
Musk is offering over $50/share
The actual price is $45.
1/2 off sale is $22.50.
Do you honestly think the stock is going to hold at $45? No, it automatically loses value.
If the stock doesn’t retain more than 60% of its value at $45, then Musk will basically get the 1/2 value to.
Remember, Musk is asking OVER the current value. The poison pill only works against people trying to take over at market value.
It’s not stealing as everyone has the non detachable right
@@maxrubin9540 From what I've read, not everyone is given the right, the person trying to take over the company is denied the right.
wow. the best explanation I have come across. keep up
Thank you!
brilliantly explained. thank you so much!!
my thoughts exactly!!
This was invaluable to me, thank you.
How does a firm prevent the hostile entity from purchasing from the diluted stock it seems like discrimination.
discrimination: the most prostituted and worst used word of the last decade
A great explanation of a defence by shareholders against a hostile takeover 👍🏽
Thank you very much sir, you explained it in a very easy way .
You are most welcome
really clear, thank you!
Best explaination ever, I understand from the very first time of watching
But...wouldn't this also dilute others shareholders's value? The value of company remains the same but with more shares, this would result in the the decline in the overall stock price.
I think that's why it's called the poison pill, given that they will sacrifice their stock price to avoid the acquisition.
thank u for the explanation . well put together.
Glad it was helpful!
Seems immoral to me, different side of the same coin as just taking shares away from an individual?
Thanks a lot! I hope my exam will test the poison pill question!
This was excellent!!! A question though. If The poison pill has never been activated since it's introduction in 1982, what methods have been used PE firms and Hedge Funds for Hostile take overs since then?
Watching this in 2022 with God King Elon fucking with twitter
Great explanation.
So there will be a discrimination between the existing (small) shareholders and the acquiring (large) shareholder. And that's ok? Could the acquiring shareholder protest?
Good video. However, a poison pill scenario did occur with Selecta in 2008.
I'd like to ask what happens to the market price after a poison pill is activated?
I'd assume (all other things equal lol) the market price will drop because market cap should hold constant - no reason the company suddenly became more valuable by the poison pill alone.
and how would that affect existing shareholders' stakes? we know the company's gained some cash, the guy attempting the takeover got diluted (plus a financial loss if the price drops), but I'm not sure I've seen anyone explain the aftermath for current shareholders
i have the same question. i’m very confused. say in this example i held 10/1000 shares. 30*10 = 300 dollar portfolio and 10/1000 is 1% in the company. 1000 outstanding shares at 30 dollars a share means market cap is 30,000. i’m given the option to buy 10 more shares at 15 a piece. 150 total. now i own 20/1800 shares, 1.11% of the company now my portfolio is worth 333.33 dollars (1.1111% of the constant market cap of 30,000). why would i buy the shares for 150 dollars just to increase my portfolio by 33.33 dollars. like you said, the value of the company doesn’t change. what am i missing??
Here after the twitter and elon saga... Great explanation 👌
SUPERBLY simple explanation!!
Awesome. I'm glad you found this video to be helpful!
Best explanation. Merci!!!!!!
An Usurper and a proxy Usurper can also be used to further dilute the circumstances of takeovers.
This is perfect! Thank you!
Glad it was helpful!
I'd love to know the legal history of this tactic. Cool tactic, but seems like it might have aspects of it that would make it immoral
this
It's illegal in the UK. but not sure about the US. It violates Rule 21 of the City Code which prohibits any action that may frustrate a takeover bid
Excellent explanation. Thank you!
No problem!
6:50 I don't understand this. How can you add 800 to 1000 shares given it is coming after subtracting from 1000 shares?
1000 shares are already issued shares
800 is additional shares issued in consequence of poison pill
••1000+800
Excellent, thank you!
You're very welcome!
How does the person who bought 20% of the company, who is also now a stakeholder, not get the option to ALSO buy stock at a discount. And making more shares means ALL shares will go down. It's called market cap. You can dish out 2x more outstanding shares and think the shares will still be worth $30 bucks after that.
Thank you. Yes, I wanted to know because of Elon's possible hostile takeover of Twitter.
amazingly explained!
Glad you think so!
whos here after elon musk twitter situation
Thank you
dave amd busters did one today thats why im here
Watching because of TWITTER/ ELON
GREAT GREAT - CLASES - IM FROM MEXICO !
If the acquiring company or person already owns the 200 shares BEFORE a poison bill is adopted, these 200 shares should have the right too, right?
If I was one of the “others” and had 190 shares before the pill, and the firm offered me an additional 190 that I exercised, I’d have 380/1800 or 21% afterwards. Could that be possible or would you only be offered 10 at half price (200 for 20% ownership - 190 currently own)?
I think it'd also depend on your intentions, let's say now you have 21.1% ownership (380/1800), do you want to acquire the firm? if yes maybe another 'poison pill' might be activated. On the other hand, as the other investor hit the 20% and you have 19%, you might be offered less shares so that you do not go past the 20% threshold.
I really admire your work.
Could i ask where do the new shares come from ? and how can this afffect the market price ? like suddenly price of stock on exchange fall to half its value in this case from 30 to 15$.
Thanks
Same question
there's a poison pill threat activation in a stock i own LLAP... they build satellites and lockhead martin wants to buy them out but LLAP doesn't want it. Can this be advantageous in anyway for me besides the stock being bough at half price? Like an overall inflated price because of a new agreement? what normally happens after a situation like this? I wish you do a follow up video with typical results or outcomes...
wow! nice explanation...thank you for make this video.
so what does that do to the current stock price?
Since the value of the firm is unaffected (unchanged) AND the number of shares has increased the, the price (market value) per share will naturally decline.
Great video thanks!
How wld the offer at $15 (50% of market price) impact the market price, if any?
I’m standing back and standing by Mr Musk
RIP Twitter
Is the poison pill evergreen? Like, once it has happened once and the initial purchaser has been diluted, can it be triggered again if the original purchaser (or whomever else) once again exceeds 20%?
Helped a lot! thank you!
Could this have a cascading effect? If someone is at 18% when someone else activates the 20% threshold and the flood of new shares pushes the second person to 20% would it activate again?
Maybe they don't give the right to the one who has 18% to buy the new shares too
what a great explanation! like it.
*nice work, well explained*
One thing I do not understand. 800 shares cannot generate another 800 new shares even if all 800 rights are exercised, because there is no anther 800 shares outstanding. If all 800 shares owns by 800 persons with one right to buy extra share at 15 dollar, but there is no another 800 shares on the marked to buy. Can someone explain it? In my point of view, after the Pill is activated, max. 400 more shares are generated. 200/1400=14.28%. Of course the conclusion is unchanged, that is poison pill is antitakeover.
It was poorly explained but when the pill is triggered, new shares are issued
Dayat Ahmad is correct but there is a lot more going on. Shares are not "magically created" because the pill has been triggered. The video did not get too deep into this either. The number of total shares of a company (all of them: common stock, preferred stock, different classes of stock, etc) all must be stated in the company's Articles of Incorporation (or Certificate of Incorporation, depending on where they are incorporated). What the company can also do, is have "Blank Check Shares" integrated in their Articles (which has to have been approved by their shareholders when it was introduced), but they will specify X amount of these Blank Check shares, for example, 1,000 blank check shares. The cool thing about the blank checks is that once they have been approved by the shareholders and integrated in the Articles, they have NO CLASSIFICATION, they are not common stock, not preferred, etc. They are "blank." The board of directors decides WHEN and on WHAT TERMS, the company is going to issue shares. Therefore, once the blank checks are in place, and when the poison pill has been triggered and the shareholders exercise their "right" then the board can issue new shares from the blank check reserve and characterize them accordingly as, new common stock, for example.
@@johnny_kayy Help me understand this because I have little knowledge of corporate finance. So if a company's Articles of Incorporation specify a set number of shares, you are saying that a significant fraction of these shares are purposely held at reserve and not active and thus not classified as outstanding shares? For example, a company can have one million shares total, and half of them are internally held and not outstanding, and the former shares can be activated by a poison pill, upon that instance they become outstanding?
@@RK831 when we are making the articles you can give the total no. Of share you can issue throughout the lifetime of the company (at fv, like 1million shares of 10$) now what you can do is issue only 5 million to the shareholders. Your outstanding capital is 5mil which is reflected in balance sheet and you can issue another 5million shares as and when needed. These rules change from country to country so you should probably read up the accounting standards of your country.
Twitter did it finally!
can i ask if this poison pill strategy is known as a "flip over plan"?
cant you just purchase more stock after activation, or does the cycle repeat every-time someone unwanted gets 20%. Also what if i was owner of multiple corporations, and i would have all of them purchase 19% share into the company, then the poison pill wont be activated due no one person having more than 20% however, lets say i have 3 corporations purchasing 19% then i would control 57% making me major shareholder. Is this a way to bypass the poison pill?
Thanks for the video!
What if mutliple investors/companies working together or multiple companies owned by one owner buys shares, so on paper no hostile company/investor owns 20%. or more, Is this possible?
Very useful!
Awesome. Thanks Rafel!
Bruce Wayne took advantage of poison pill to rebuy his company
Learning about this after Elon trying to acquire Twitter.
Hope you found the video helpful!
Wouldn’t this tank stock price of the company though?
It will, yahoo activated a poison pill to prevent a Microsoft takeover, sending the stock price to hell.
what if you get 51% share quickly enough can you vote against the Poison Pill and take over the company
"triggering event" sounds about right haha go elon
can't I bypass the poison pill by having other people hold shares for me? If I have 19 shares and my friend has 19 shares we both own the company and can do what we want. Well, I guess I need one more friend but the point is made.
There is a theory in M&A law called the "Group Theory" which came from the GAF Corporation v. Milstein case in 1967. Basically, the same scenario in your hypothetical. Poison pill is a "defense" for hostile takeovers. Takeovers/Hostile Tender Offers must comply with the Williams Act. In short, if you acquire 5% of more and want to "influence" aka takeover the company, then you must file a 13D with the SEC and the Company, within 10 days. In the Milstein case, a few people had LESS THAN 5% individually, but together, they owned about 11% of the company and the court said, the rule applies to "individuals or a GROUP" and since as a group they were over the limit, they had to file a 13D.
Remember, that the case above was about compliance with 13D of the Williams Act. However, since the Williams Act and Hostile Takeovers work hand-in-hand, most of the times, when companies draft their poison pill provisions to implement them in the Articles of Incorporation, they will use the same Group Theory as above to eliminate that issue. However, KNOWING WHO is working together, is another question. But that issue is somewhat resolved because to the Williams Act.
But now it happens.
Elon is playing chess...
elon teach me something new everyday
I'm here after Elon try to buy Twitter.
Elon musk and Twitter sent me here
Where tf do those shares come from?
Company can issue fresh shares. Dilution essentially occurs not by redistribution of original shares but by issuing new shares, preferentially.
@@sarimkamal5649Thanks for the reply.
One, I can't believe you can simply "MAKE" more shares. I can understand doing a split but making more of what should be a finite resource after going public seems like suicide. This is going to allow shareholders the option of either doubling down or taking a loose on their positions (i don't mean options).
I also can't understand how this can work while restricting the entity that's attempting the hostile take over to NOT have the right to purchase those shares. It seems like a mechanism that should be illegal. The only way this should be possible is if purchasing shares requires you agree to the poison pill mechanism before buying in.
Whos here from elon and twitter
Elong Ma Twitter moment
Go Elon!
Who is here after Twitter Poison Pill against Elon Musk
That question has been asked already.
Excellently explained..!
Thank You 😊