Poison Pills in the Pandemic
As a quick follow-up to an article we wrote on this website (see Resources – Helpful Hints – “Can Pills Poison the Transfer Agent Too?”), the Coronavirus has sparked new interest in poison pills as a corporate anti-takeover tool, given persistent deterioration in companies’ stock price in the face of the pandemic. Indeed, as many as 150 new pills could be implemented by the end of 2020, when in every previous year (going way back) the number was a fraction of that.
Resorting to this tool, over the typical objection of ISS, Glass Lewis and institutional investors, shows a relative desperation in corporate C Suites to put up anti-takeover protections at any cost. Fortunately, though, ISS et. al. seem to understand these companies’ plight, and are not objecting to pills as long as they carry certain attributes like one-year tenors (or less), trigger percentages that are not too low, and waiver provisions for “qualified offers” and “passive investors.”
Like in the Helpful Hint referenced above, our primary message here is this: If the company contemplates a poison pill (essentially a rights plan) it should get its stock transfer agent involved well before implementation. Why? Because the pill will have no substance or “teeth” if, upon actual trigger, the transfer agent does not promptly (“immediately”) issue the rights, or warrants, to every registered shareholder permitting purchase of additional shares at a deep discount to market price. And surprisingly, in our long experience, many pills in place today do not have, readily available if at all, to both the company and the transfer agent, the underlying rights agreement specifying the duties of the parties when a trigger happens, let alone what the transfer agent’s fees would be to perform this critical work.
So, if you are a company contemplating a pill, put your transfer agent in your “working group” right away. If you are a transfer agent and you hear your client is contemplating a pill, call them and get yourself involved. And if you are a company and want some guidance on what a transfer agent’s fees should be to accept a pill appointment, administer the pill (rights plan) in a pre-trigger mode, and actually perform during a trigger, e-mail us at .