Shareholder Rights Plan - History

History

The poison pill was invented by mergers and acquisitions lawyer Martin Lipton of Wachtell, Lipton, Rosen & Katz in 1982, as a response to tender-based hostile takeovers. Poison pills became popular during the early 1980s in response to the wave of takeovers by corporate raiders such as Carl Icahn. The term "poison pill" derives its original meaning from a poison pill physically carried by various spies throughout history, a pill which was taken by the spies when they were discovered to eliminate the possibility of being interrogated by an enemy.

It was reported in 2001 that since 1997, for every company with a poison pill which successfully resisted a hostile takeover, there were 20 companies with poison pills that accepted takeover offers. The trend since the early 2000s has been for shareholders to vote against poison pill authorization, since poison pills are designed to resist takeovers, whereas from the point of a shareholder, takeovers can be financially rewarding.

Some have argued that poison pills are detrimental to shareholder interests because they perpetuate existing management. For instance, Microsoft originally made an unsolicited bid for Yahoo!, but subsequently dropped the bid after Yahoo! CEO Jerry Yang threatened to make the takeover as difficult as possible unless Microsoft raised the price to US$37 per share. One Microsoft executive commented, "They are going to burn the furniture if we go hostile. They are going to destroy the place." Yahoo has had a shareholders rights plan in place since 2001. Analysts suggested that Microsoft's raised offer of $33 per share was already too expensive, and that Yang was not bargaining in good faith, which later led to several shareholder lawsuits and an aborted proxy fight from Carl Icahn. Yahoo's stock price plunged after Microsoft withdrew the bid, and Jerry Yang faced a backlash from stockholders that eventually led to his resignation.