ERHC Energy Inc (ERHE)

[stockguard]

Poison Pill

All the company need do in this case is announce they have adopted a shareholder rights plan designed to encourage the fair treatment of its shareholders in the event of an unsolicited takeover bid for shares of the company. The rights plan will provide the board of directors and shareholders of the company with more time to fully consider any unsolicited takeover bid without undue pressure, allowing the board to pursue, if appropriate, other alternatives to maximize shareholder value and allowing additional time for competing bids to emerge.

This would be voted on at the annual shareholders meeting.

The Poison Pill strategy is 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.
1. By purchasing more shares cheaply (flip-in), investors get instant profits and, more importantly, they dilute the shares held by the competitors. As a result, the competitor's takeover attempt is made more difficult and expensive.
2. An example of a flip-over is when shareholders have the right to purchase stock of the acquirer on a 2-for-1 basis in any subsequent merger.