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InvestHub.com's
Finance Dictionary and Glossary of Investment Terms

Poison pill  

Definition 1.

Anti-takeover device that gives a prospective acquiree's shareholders the right to buy shares of the firm or shares of anyone who acquires the firm at a deep discount to their fair market value. Named after the cyanide pill that secret government agents are said to be instructed to swallow if capture is imminent.
 

Definition 2.

Any tactic by a company designed to avoid a hostile takeover. One example is the issuance of preferred stock that gives shareholders the right to redeem their shares at a premium after the takeover.
 

Definition 3.

A strategy used by corporations to discourage a hostile takeover by another company. The target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills: 1. A "flip-in" allows existing shareholders (except the acquirer) to buy more shares at a discount. 2. The "flip-over" allows stockholders to buy the acquirer's shares at a discounted price after the merger.
 
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