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Definition

A defensive tactic used by a company which is the subject of a hostile takeover to make it more difficult for the predatory company to gain control. It takes the form of a "shareholder rights agreement" which entitles the existing shareholders to take up additional shares in the company, usually at a discount. Usually the objective is to force the predatory company to negotiate with the board of directors and the outcome is usually a higher price for control of the business. For example, in Elon Musk's hostile bid for Twitter in April 2022, the board of Twitter enabled a poison pill clause which will make it more difficult for Musk to gain control. This may well not be appreciated by existing shareholders and could backfire. The poison pill clause may also be challenged in court.

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