Poison Pills in the Wake of COVID-19

Given the large number of public companies that have seen their market valuations shrink to levels that were thought unfathomable prior to March 2020 when concerns around the COVID-19 pandemic began to take hold, there has never before been an opportunity when activist and opportunistic investors were presented with so many potential targets.

Companies faced with market valuations that they view as making them increasingly vulnerable may want to consider adopting a poison pill, whether it be a traditional takeover-defense poison pill or a net operating loss (NOL) poison pill intended to protect and preserve NOLs from being limited by IRC Section 382. If a poison pill is not yet necessary, a poison pill can be "put on the shelf" and made ready for adoption on very short notice.

While takeover defense poison pills and NOL poison pills have different primary purposes, they are structurally very similar. In each case, they deter a person or group from acquiring, without prior board approval, beneficial ownership of a company's voting stock in excess of a specified threshold (e.g., 5% to 20%) by threatening the acquirer with severe voting and economic dilution.

Poison pills have been in use for close to four decades and their use is endorsed in Delaware by case law and by statute in numerous other jurisdictions. Poison pills remain the most effective tool for a public company to prevent an unwanted accumulation of its shares above a specific threshold. Even the proxy advisory firms that, in recent years, have discouraged poison pill adoptions, have issued recent guidance suggesting a more flexible approach toward poison pills and have indicated that a severe stock price decline as a result of the COVID-19 pandemic is likely to be considered valid justification in most cases for adopting a poison pill of less than one year in duration.

Listen as our authoritative panel of speakers, with extensive experience advising on poison pills, takeover defenses, and shareholder activism, discusses trends in poison pill adoptions in the wake of COVID-19, types of poison pills and how to choose which type of poison pill is right for your company, pros and cons of adopting a poison pill, key poison pill terms and provisions, proxy advisory firm considerations, and steps to adopt and implement a poison pill.

1. What is a poison pill
2. Types of poison pills and how to choose which type of poison pill is right for your company
3. Takeover/activism defense poison pills
4. NOL poison pills
5. Poison pills "on the shelf"
6. Poison pill adoptions in the wake of COVID-19
7. Pros and cons of adopting a poison pill
8. Key poison pill terms and provisions
9. How a poison pill works
10. Proxy advisory firm policies and guidance on poison pills
11. Steps to adopt and implement a poison pill

The panel will review these and other key issues:

• Why poison pills are so effective?
• How to decide whether it is time to adopt a poison pill
• How to avoid prematurely adopting a poison pill
• How to choose whether to adopt a takeover defense or NOL poison pill
• What are the key decisions that need to be made on poison pill terms (e.g., ownership triggering threshold, exercise price, two-tier vs. one-tier triggering threshold) and what factors should influence those decisions?
• Who are the key company advisors needed for a poison pill adoption?
• Why every company, even if not currently in need of a poison pill, should have a poison pill on the shelf ready to be adopted on short notice
• Why the messaging of the reasons for a poison pill’s adoption is critical
• How to balance need for a poison pill with proxy advisory firm guidance