Adopting a Poison Pill is Not the Cure for the Coronavirus (April 2020)

Capital markets have dropped precipitously since the coronavirus outbreak reached the U.S. in late February. Despite this tremendous drop, we are in the midst of a recovery that is premised on the belief that Congress’ stimulus will boost U.S. consumer spending while also providing small businesses and companies with financial assistance to continue their operations. The recovery also hinges on the newfound belief that U.S. workers will return to work in the near future. If the stimulus fails to achieve its goals or the workforce is unable to return as quickly as hoped, the recent uptick may be short-lived. This is exemplified by the recent volatility in the markets.

The sudden drop led many companies’ stock to plummet to a level that does not reflect the company’s intrinsic value. Some of these companies fear this situation could lead to unwanted takeover bids and are considering their options. One controversial, but effective option that companies are considering is adopting a shareholder rights plan, colloquially known as a Poison Pill to stave off or at least deter a potential unwanted acquisition.

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