Flip-Over Poison Pill

A flip-over poison pill is a type of defensive poison pill strategy that enables shareholders to buy shares in the acquiring company at a deeply discounted price, if a hostile takeover bid is successful.

Flip-over poison pills are one of the more commonly used poison pill strategies used to fight off unwanted takeover attempts, because they are an effective deterrent. If the acquisition is successful, the target firm’s shareholders will dilute the equity of the shareholders in the acquiring company.

It usually makes any transaction so unattractive that the acquirer is forced to negotiate terms with the board of directors but the poison pill rights plan – which goes into effect as soon as the takeover bid is made — has to be included in the bylaws of the company.

An alternative to flip-over poison pills is the flip-in poison pill, which gives existing shareholders of the targeted company, excluding the acquirer, the rights to purchase additional shares of the targeted company at a discounted price. Other takeover defenses include greenmail, the pac-man defense, the white knight and white squire defenses, creating staggered boards and supermajority rules.