Voting Poison Pill Plan

An anti-takeover strategy in which the company being targeted for a takeover issues securities that provide special voting rights to shareholders. A voting poison pill plan is designed to create an environment that is less attractive any new owners.

Companies use poison pill strategies in order to deter other companies from initiating a hostile takeover. They tend to be relatively drastic strategies and are designed to reduce the value of a company post-takeover, which has the effect of forcing companies looking to initiate the takeover to engage with company management rather than only engaging with existing shareholders. This is because the shareholders will be against a takeover if they will ultimately be worse off financially, which is what a poison pill strategy threatens to do.

Voting poison pill plans are designed to impact the voting rights of the potential acquirer. The company can impact voting rights by issuing securities that provide special voting rights to the security holders. The shares may have special voting rights that are triggered upon hostile takeover, but which otherwise do not carry any special voting rights. These special voting rights, called super voting rights or privileges, may allow a relatively small group of shareholders to reject a takeover bid.

Poison pill plans that affect voting rights may not elicit a positive reaction from shareholders. This is because shareholders may approve of the merger, but because of the poison pill may have to obtain a supermajority in order to push the merger through. Companies that seek to acquire a majority stake of shares – 51% - for a premium may abandon the takeover if they think that a voting poison pill plan will be enacted. Because of this, companies that include this type of defense in the company charter may see a decline in their share price.