A target company’s method for preventing or deterring a hostile takeover attempt is to employ a flip-in poison pill. Existing shareholders, but not acquiring shareholders, might buy more stock in the firm sought for acquisition at a discount using this strategy. The value of the shares previously acquired by the purchasing firm is diluted by flooding the market with new shares, lowering its percentage of ownership, and making it harder and more expensive for the buyer to take control. It also allows investors who buy fresh shares to profit from the difference between the reduced purchase price and the market price right now.
A strategy used by corporations to discourage hostile takeovers. With a poison pill, the target company attempts to make its stock less attractive to the acquirer. A tactic used to make a company unattractive to an unwelcome takeover bidder.There are two types of poison pills:
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A “flip-in” allows existing shareholders (except the acquirer) to buy more shares at a discount.
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A “flip-over” allows stockholders to buy the acquirer’s shares at a discounted price after the merger.
Explains:-
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By purchasing more shares cheaply (flip-in), investors get instant profits and, more importantly, they dilute the shares held by the acquirer. This makes the takeover attempt more difficult and more expensive.
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An example of a flip-over is when shareholders gain the right to purchase the stock of the acquirer on a two-for-one basis in any subsequent merger.