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Flip In Poison Pill | How Flip In Poison Pill Strategy Works? - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to a channel a
WallStreetmojo or watch the video
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by clicking the bell ican today we have a
topic with us is called flip in poison
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pill now we have heard about poison pill
a lot of times when we talk about
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mergers and acquisition probably during
the hostile takeovers this word is quite
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famous we'll try and see what certain
here see Netflix on Monday say that it
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had adopted a stockholders write plan
designed to prevent activist
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shareholders from launching in hostile
takeover see whenever you talk about
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this kind of terms in Oh hits
it's really Verity now what exactly this
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is all about first what does this
flippin poison pill exactly mean well
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there are 5 types of poison pills
available for the companies which act as
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a defense strategy for the company now
flip pin is one of this 5 poison pills
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this is you know these sort of you can
say the defense strategy it is a
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different strategy where existing
shareholders of the company are allowed
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to purchase more shares in the target
company at a discount so the target
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company uses the Flip in strategy to
keep the pay hostile takeover diluting
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the value of the company with increased
available shares so this leads to the
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reduction of the percentage of the
ownership of the potential acquiring
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company so only existing shareholders
are allowed to purchase the shares and
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not the acquiring shareholders let's
break down this term into more detail
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format see the flip in strategy the
provision that is mentioned in the
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company's by loss so whenever a
shareholders acquires a certain number
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of shares generally closely around let's
say 20 to 50%
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then the flip in poison pill is
triggered into the action and if we
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consider the shareholders point of view
of flip in helps in making quick money
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because the new shares are purchased at
the discount right and for the
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shareholders this difference between the
market price of the shares and it's
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discounted purchase price is considered
to be the profit now many experts give
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the logic that when the board of
companies implements the flip in
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strategy it lessens the number of the
potential offers when helped in the
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production of the own position because
in the case of the company takes over
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then the position of the board is
unstable condition right so in order to
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secure this position keep it stable the
boards of the company may prevent
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acquisition by implementing this poison
pill but in the end this strategy is bad
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for the company and its shareholders too
so the provision for flip in poison
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pill can be found in the company's
by laws or charter which says that you
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know they can use it as takeover defense
know the companies they called it as a
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takeover defense now the companies who
wants to fight this strategy can up for
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dissolving this in the code by giving
them deep discount but there is
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uncertainty about the chance of the
success so the right to purchase happens
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only before the potential takeover and
when the acquirer
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crosses a certain threshold point of
obtaining the outstanding shares now
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when the potential acquirer starts a
poison pill by gathering more than the
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threshold level of the shares then its
risks the discriminated dilution in the
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target company this threshold develop a
certain ceiling on the amount of the
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shock and any shareholder can gather
before being required to start a proxy
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contend
tor will take an example over here to
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understand let's discuss an example of
flip in poison pill see in the year 2004
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the People Soft was employed the model
against the Oracle's a multi-billionaire
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take bid then the flip in poison pill
was immediately put into action the
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flip in poison pill that was implemented
was designed in such a manner so as to
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make the take off or Oracle
very difficult so the customer insurance
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program which was there was designed to
compensate the customers and the
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takeover happened so this became
financial liability right and for the
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Oracle as for the and rebuttals are in
such analysts like Forester Research
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had had seen this and Oracle tried to
opt for the quote resolution for this
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case and finally it succeeded in
December 2004 when it made a final bid
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of approximately $10.3 billion
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now we'll try and understand what is the
difference between flip in Poisson
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versus the flip over poison pill see
writes plan include both flip in and
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flip over feature the flip in poison
pill is a strategy which the target
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company uses for making it difficult for
acquirer
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company to gain control over the company
so this strategy is mentioned as the
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provision in the takeover candidates
bylaws and that allows the existing
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shareholders of the target company and
it excluding the acquirers right to
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purchase the additional shares of the
target company but at a discounted price
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though the flip in poison pill
strategies purely defense tactic which
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dilutes the share price of the targeted
company and also the percentage of the
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ownership so the acquirer may already
have on the contrary the flip over is a
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strategy that gives the existing
shoulders of the target company these
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rights
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purchase shares of the acquiring company
at a discounted price so it is
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implemented to protect against the
second step transaction and this
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strategy it comes into play after the
rights have been triggered and the
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target was sold or engaged in some other
change in the control transaction this
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circumtances each right then
outstanding will flip over and become a
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right to buy right to
it becomes right to buy shares of the
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red our common stock with the market
value equal to thee twice the exercise
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price of the right so the provision for
this strategy must be included in the
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bylaws of the acquiring company and the
implementation of this rights comes into
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play only when the takeover bid arises
the flip power poison pill gives an
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encouragement to the existing shoulders
of the target company to purchase the
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shares of the acquiring company so as to
dilute its shares that has been diluted
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the share price so in contrast to the
flippant provision which dilutes the
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buyers interest in the target comp the
flip over provision creates a delusion
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in the interest of the buyers
shareholder you know in the buyers
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itself
fifth my final thoughts on this
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particular thing when the flip in poison
pill provision debtors the buyer from you
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know crossing the ownership threshold
that eventually triggers the right plan
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for confronting it with the prospect of
the substantial delusion in every holder
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except the buyer is allowed to purchase
the new shares at 50% discount er to the
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current market and the buyers ownership
interest gets diluted if the flip in
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strategy
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of the rights plan is implemented and
the actual amount of the dilution is
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dependent on the exercise price of the
rights but it is quite substantial
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enough to make triggering the rights
economically unviable after discussing
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all of this I think you must have got a
fantastic idea regarding the flip in
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poison pill concept we did it the
meaning part we had a breakdown this
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into different format we discussed the
bylaws part we also discussed the
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numericals the numbers discussed the
Oracle example of flip in poison pill
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the difference is between the in and
over so that's it for this particular
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topic if you have learned and enjoyed
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you very much Cheers
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