NanoLogix Inc (NNLX)

[leroy kelly]

Here is an opinion.

Poison Pills
What happens when a board of directors is afraid that a company will expose their shareholders to the truth that they could reap a premium by selling their shares in a buyout and management does not want to sell? They initiate a poison pill, or as companies prefer to call them, a "shareholder rights" plan. Poison pills are designed to make unfriendly acquisitions prohibitively expensive for the acquirer, often allowing underperforming management to keep their jobs and their salaries.

In essence, a company sets a trigger whereby if any shareholder acquires more than that amount of the company, every other shareholder except the triggering shareholder has the right to buy new shares at a major discount. This effectively dilutes the triggering shareholder and significantly increases the cost of a deal.

What's really unfortunate about these deals is the embedded paternalism. Management and the board of directors are telling its own shareholders "look, you're not smart enough to decide whether this is a good deal, so we'll decide for you". In other cases, it's simply a conflict of interests - the management or board owns a big slug of stock and just isn't ready to sell yet.

It is true that some studies have shown that companies with poison pills get higher bids (and takeover premiums) than those that do not. The problem is that there is relatively little beyond the threat of lawsuits that shareholders can do to ensure that a board of directors upholds their fiduciary duty to shareholders. If a majority of shareholders wish to sell the company at a given price, a poison pill and management's opinion of the valuation should not be allowed to stand in the way.



Read more: Some Good News Is Bad News For Investors http://www.investopedia.com/articles/stocks/11/interpreting-investor-news.asp#ixzz4fwUSE0fw
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