Poison pill examples
The first example of an effective poison pill occurred in the 1980s when General Oil flooded the market with shares to avoid a hostile takeover by T. Boone Pickens. The Delaware Supreme Court ruled that the tactic was legal in 1985.
In 2012, popular growth investment Netflix (NFLX +1.69%) adopted the plan when corporate raider and shareholder activist Carl Icahn took a 9.98% position in the company.
Icahn said he felt Netflix was ripe for an acquisition from one of the tech giants and initially invested around $320 million. He cut it in half in 2013 and eventually cashed out in 2015 with a $1.9 billion gain. Luckily for Icahn and other shareholders, the poison pill never had to be activated, and the market eventually discovered Netflix's true value.
A more recent poison pill defense occurred in 2018 when Papa John's International (PZZA -1.10%) utilized one to stop founder John Schnatter from taking over the company. Schnatter, who was ousted after reportedly using a racial slur on a company conference call, owned 30% of the company.
Papa John's planned to distribute rights to every other shareholder so that if Schnatter increased his stake to more than 30%, or any other shareholder attempted to purchase a stake of more than 15% of the company, the other shareholders could buy additional shares. The plan would effectively double the price for Schnatter to take control of the company.
Related Investing Topics
