Poison pill meaning

A poison pill is a takeover defence in which a target company triggers rights that allow existing shareholders (but not the bidder) to acquire securities at a discount, causing significant dilution or otherwise making a hostile takeover bid prohibitively expensive. Typical features include a shareholder rights plan with a low‑price “flip‑in” or “flip‑over” right that activates once an acquirer crosses a specified shareholding threshold. The term is descriptive rather than a defined legal term, originating in US practice. In the UK (England & Wales, Scotland and Northern Ireland), the Takeover Code’s frustrating action restrictions generally prevent a target board from adopting or activating a poison pill during an offer period or when an offer is in contemplation, unless shareholders approve or the Takeover Panel consents. Pre‑existing rights plans are rare and would still be constrained by the Code. In Ireland, the Irish Takeover Rules impose broadly equivalent frustrating action prohibitions with similar practical effect. Accordingly, while “poison pill” is commonly used in UK and Irish legal commentary to describe anti‑takeover measures, classic US‑style shareholder rights plans are typically not permissible in practice, and boards focus on Code‑compliant bid defence strategies.