H42: I think that most people who talk about the poisin pill as being a protective measure that can be used to ward off an unfriendly takeover don't realize that the the poisin pill expires at the end of this year. While BODs apparently have the power to extend the terms, recent trends appear to be against them doing so.
Trends in Takeover Defenses: Retreat or Retrench or Compromise?
Over 2,100 public U.S. companies had poison pills in force in January 2004, including 33 of the top 100 companies by revenue on the New York Stock Exchange (NYSE) or The NASDAQ Stock Market. Year end figures reveal that of the 56 U.S. companies that had a rights plan scheduled to expire naturally during 2004, 25 companies extended the plan, 29 companies let the plan expire, and two companies were acquired. It also is important, however, for a board to consider its options in the face of increased actual or threatened shareholder activism with respect to takeover defenses.specifically:
! Avoid the issue (and the shareholder vote) by conceding in advance ó Retreating companies such as Pfizer, Coca-Cola, Aetna, Bristol-Myers Squibb, and Dell opted to remove poison pills and/or declassify the board before allowing such issues to be the subject of a shareholder proposal, many times on the belief that a pill can be quickly adopted if the company receives an unsolicited offer. Of course, the market capitalization of some of these companies offers some inherent protection against hostile bids.
! Accede after losing a shareholder vote ó In 2004, 39 companies acceded to shareholdersí votes to drop their poison pills, including Southwest Airlines, Allstate Insurance, and Circuit City stores. Lucent Technologies offered a resolution to repeal its classified board in response to shareholder votes in each of the past three years requesting such action.
! No action in response to shareholder proposal ó 3M, Gillette, Federated Department Stores, and PeopleSoft are among recent examples of companies that have opted to renew or strengthen takeover defenses despite shareholder proposals to the contrary. Of course, this carries the potential for negative publicity as acting contrary to good corporate governance
! Adopt compromise provisions to takeover defenses ó More than 75 companies have amended existing rights plans to include Three-Year Independent Director Evaluation (TIDE) plans, which require the companyís independent directors to review the plan every three years to evaluate whether it is still in shareholdersí best interest. Recently, many companies that have repealed a rights plan also have adopted ìfiduciary outî provisions, pursuant to which the board agrees to subject the adoption of any future rights plan to shareholder approval unless the board determines it would not be in the shareholders to do so. Still others, including JP Morgan Chase, Occidental Petroleum, Dow Chemical, and Morgan Stanley have taken an even more concessionary approach, agreeing to subject any plan adopted under the ìfiduciary outî to shareholder approval within one year of adoption.
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