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On the Use of Poison Pills and Defensive Payouts by Takeover Targets

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Author Info
Randall A. Heron (Indiana University)
Erik Lie (University of Iowa)
Abstract

Using a large sample of unsolicited takeover attempts, we examine the determinants and effects of targets' choice to adopt poison pills either before or after unsolicited offers and to initiate defensive payouts. The probability of poison pill adoptions decreases with insider ownership, whereas the probability of defensive repurchases increases at a decreasing rate with insider ownership. Poison pills contribute to bid increases and higher bids, yet do not alter the likelihood of takeover. Defensive share repurchases slightly reduce the takeover likelihood but do not appear to harm shareholders, perhaps because they tend to fend off lowball bids or increase the firm's leverage.

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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?JB790405
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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 79 (2006)
Issue (Month): 4 (July)
Pages: 1783-1808
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:4:p:1783-1808

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  1. Albert Banal-Estanol & Paul Heidhues & Rainer Nitsche & Jo Seldeslachts, 2009. "Screening and Merger Activity," Discussion Papers 270, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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