Poison pill strategies are defensive tactics that allow companies to thwart hostile takeover bids from other companies. Many companies may find themselves unprepared when facing such bids. By adopting a poison pill strategy, a company can be somewhat reassured that acquiring companies will approach its board of directors, not the shareholders. Poison pill strategies are also known as shareholders' protection rights plans.

History

During the late 1950s and early 1960s, several large corporations began acquiring other companies to diversify their operations. Diversification allowed them to offset their losses in a failing industry with profits from other unrelated, successful industries. Such phenomena caused concerns about the potential of conglomerates to concentrate excessive economic power in the hands of a few corporations. This led to the passage of the Williams Act in 1968, which required the acquiring company to fully disclose the terms of an impending acquisition...