Officially called shareholder rights plans, poison pills are often used by management to put off potential suitors as they allow for the issue of discounted shares to current shareholders, making a takeover much more difficult. Investors have voiced their disapproval to such measures because they interfere with the market, and usually only benefit the incumbent management.
Earlier in 2004 the EDS board rejected a proposal from shareholders to scrap the poison pill defense, which was first installed in 1996.
Subsequent trading in EDS’s shares has not indicated that investors believed the move would be followed by a takeover, as its share price dropped by 1%, but the plan will not be dismantled until February 2005.
Plano, Texas-based EDS has been regarded as a possible takeover target for the past two years as profit warnings and losses stemming from major contracts have battered down its market valuation from $21 billion to just over $11 billion.
