poison put

Not sure if this is a silly question or not, but here it goes… I don’t quite understand how put provisions in bonds can deter unfriendly takeovers, i.e ‘poison put’?? – off the topic – to all the people who contribute to AF, you are all champs!! I read all the posts regularly and gain so much insight and understanding from everyone’s posts. Keep up the good work and good luck to all in Dec…

Poison Pills, p/ investopedia: A strategy used by corporations to discourage a hostile takeover by another company. The target company attempts to make its stock less attractive to the acquirer. There are two types of poison pills: 1. A “flip-in” allows existing shareholders (except the acquirer) to buy more shares at a discount. — But with bonds? Convertible perhaps? I have no idea

Puttable at huge prices in the event of a change in ownership.

BosyBillups Wrote: ------------------------------------------------------- > But with bonds? Convertible perhaps? I have no > idea This isn’t my thing but I’m pretty sure you could use convertible bonds as takeover defense too. Just put in some covenant that says that in the event of a change of ownership each convertible bond converts into some huge number of shares. Unless there’s something illegal about that (and it seems so close to other takeoevr defenses that I don’t see how it could be), I’ll bet someone has done it. It might be popular with the convert arb guys because the poison conversion option would be essentially free and those guys like free stuff.

Posion puts force a hostile acquirer to buyback the target’s bonds at a premium to par provided there’s a change in control, and this includes taking majority stakes in voting class stock. This premium coupled with debt refinancing costs increases transaction costs thus fending off hostile bidders. Other defenses include poison pills, a.k.a rights plans, charter amendments, ESOP blocks, supermajority and fair-price provisions, and of course DOJ antitrust dept. as a last resort.

lol, DOJ antitrust.

ahh, thanks! Didn’t realise you could put a condition of change in ownership in the indenture. Makes sense now. Thanks.

You can put anything you want in an indenture, e.g., Red Sox win the World Series the bonds are callable at par…

or the Cubs. But that wouldn’t change the price of the bond at all.