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"Flip-out" Poison Pill

Not sure if we have to know this for the exam, but could someone explain to me how the “flip-out” poison pill definition works?

The definition on investopedia is a bit confusing…

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Assuming you mean “flip-over” poison pill.  Given a hostile takeover or merger, it gives the shareholders in the target company the right to buy shares in the acquiring company at a discounted price.  This would dilute the equity position of the shareholders in the aquiring company as they would issue more shares for a price below the market value of the share.

 As to how it works, exactly: that’s something I’ve always found puzzling.  I’m not sure if the target company subsidizes the purchase of the acquirer’s stock or not, but I cannot think of another way.  It seems unlikely that the acquirer would agree to issue shares at below-market price, but maybe they do.

It’s odd.

Simplify the complicated side; don't complify the simplicated side.

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