These things are pretty dreary and technical – and a bit academic since no company has ever activated one in anger or the heat of a hostile takeover bid since they were dreamed up a decade or so ago, but for anyone interested, the way Gupta Corp’s poison pill works is that if a person or group acquires 15% or more of Gupta’s common shares prior to a redemption of the rights it plans to distribute to its holders, the rights will conditionally entitle shareholders other than the potential acquiror to buy new Gupta shares at a 50% discount; the condition for exercise is triggered 10 days later if Gupta sells more than 50% of its assets or earning power or is acquired in a merger or other business combination; that means that the acquiror will have to assume the obligations under the rights, which means that buying Gupta would cost the hostile bidder about twice as much as he expected or intended to pay, and if the deal is a share exchange, the existing holders of the acquiring company would be heavily diluted by Gupta shareholders joining the register; Gupta has also given itself the option of exchanging the rights for new shares on a one-for-one basis, the effect of which would be to halve the value of the shares that had been bought by the hostile bidder, who is of course precluded from receiving any of the rights – none the wiser? We thought so…
