Aeropostale (NYSE: ARO ) has swallowed some bitter medicine in an apparent attempt to defend itself from a potential buyout. The apparel retailer announced that it adopted a stockholder rights plan -- more commonly known as a "poison pill" defense -- granting its shareholders the right to purchase one preferred share of stock for each share of common they currently hold. Under certain circumstances each right will entitle the holder to buy one one-thousandth of a share of a new class of security, series A junior participating preferred stock, at a $40 exercise price.
The right kicks in when and if a single entity gains 10% of the company's outstanding common stock. That threshold is 15% in the case of a "passive institutional investor."
In the press release announcing the news, Aeropostale said the initiative "is not intended to prevent an acquisition of the Company on terms that the Board considers favorable to, and in the best interests of, all stockholders." Last week, activist investment firm Crescendo Partners requested that the apparel retailer go private in order to better realize its value.
Crescendo Parters says it is a significant Aeropostale shareholder, although it has not disclosed its exact stake. It has said it intends to nominate candidates for the company's board at the retailer's 2014 annual meeting.