A new report out this month gives support for the controversial defense strategy of poison pills where unpleasant traps are laid to ward off hostile take-over bids. The report, published by Georgeson & Company, a New York-based financial services group, claims that shareholders in organizations that had previously implemented poison pills, received a total of $13,000m in additional take-over premiums in the five years from 1992 to 1996. Companies who had failed to implement pills effectively gave away $14,500m in potential value, says the author Jamil Abourmeri. Poison pills are not a water tight defense against hostile bids but they do delay matters sufficiently to allow the target company time to organize a defense. The commonest form of pill authorizes the issuance of super-cheap shares to existing shareholders should a hostile buyer attain between 10% and 20% of the company, thus diluting the outside buyer’s holding. The pill therefore becomes a bargaining tool to bring both companies to the negotiating table. This latest report was commissioned to address the growing wave of anti-pill sentiment amongst institutional shareholders who see the presence of such items as a deterrent to a take-over offers and an infringement of shareholder rights. In essence, the report claims that the presence of a poison pill does not reduce the likelihood that a company will become a take-over target, the take-over rate was found to be similar for companies with or without pills. The conclusion reached by Georgeson & Co is that pills do nothing but good for shareholder value.
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