poison pill- Advantages/ disadvantagesI lean towards the disadvantage side of Howee's poison pill
Advantages of Shareholder Rights Plan
Ever since their introduction in 1982, shareholder rights plans have had a very high rate of success in preventing hostile takeovers. There are obvious benefits for the existing board of directors, but shareholders benefit as well when the takeover might damage the stock's long-term value.
Another major benefit is that poison pills are extremely effective at discouraging monopolistic takeovers. Companies that might otherwise fall victims to overpowering large competitors can use the poison pill method to keep markets dynamic.
Disadvantages of Shareholder Rights Plan
There are three major potential disadvantages to poison pills. The first is that stock values become diluted, so shareholders often have to purchase new shares just to keep even. The second is that institutional investors are discouraged from buying into corporations that have aggressive defenses. Lastly, ineffective managers can stay in place through poison pills; otherwise, outside venture capitalists might be able to buy the firm and improve its value with a better managing staff.