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Simple English definitions for legal terms
pill
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A quick definition of pill:
A pill is a way for a company to protect itself from being taken over by another company. It's like a special rule that makes it harder and more expensive for the other company to buy the first company. This rule gives the first company's shareholders the right to buy more of the company's stock or debt at a lower price, which makes it more expensive for the other company to take over. This is called a poison pill.
A more thorough explanation:
Definition: A pill is a defense mechanism used by corporations to prevent unwanted takeover bids. It is also known as a poison pill. Shareholders are given the right to acquire equity or debt securities at a favorable price to increase the bidder's acquisition costs. This makes the takeover prohibitively expensive.
Example: If a company is being targeted for a takeover bid, the board of directors may implement a poison pill. For instance, they may offer shareholders the right to purchase additional shares at a discounted price, making it more expensive for the bidder to acquire a controlling interest in the company.
This example illustrates how a poison pill can be used to deter hostile takeovers by making them too expensive for the bidder.