Herborium Group Inc (HBRM)

[stockbull01]

In publicly held companies, "poison pills" refer to various methods to deter takeover bids. Takeover bids are attempts by a bidder to obtain control of a target company, either by soliciting proxies to get elected to the board or by acquiring a controlling block of shares and using the associated votes to get elected to the board. Once in control of the board, the bidder can manage the target. As discussed below, targets have various takeover defenses available, and several types of defense have been called "poison pills" because they harm not only the bidder, but the target (or its shareholders) as well. Currently, the most common type of takeover defense is a shareholder rights plan.

Because the board of directors of the company can redeem or otherwise eliminate a standard poison pill, it does not typically preclude a proxy fight or other takeover attempts not accompanied by an acquisition of a significant block of the company's stock. It can, however, prevent shareholders from entering into certain agreements that can assist in a proxy fight, such as an agreement to pay another shareholder's expenses. In combination with a staggered board of directors, however, a shareholder rights plan can be a defense.[7]

The goal of a shareholder rights plan is to force a bidder to negotiate with the target's board and not directly with the shareholders. The effects are twofold:[8]

It gives management time to find competing offers that maximizes selling price.
Several studies indicate that companies with poison pills (shareholder rights plans) have received higher takeover premiums than companies without poison pills. This results in increased shareholder value. The theory is that an increase in the negotiating power of the target is reflected in higher acquisition premiums.