Newspaper article THE JOURNAL RECORD

Death of the Poison Pill

Newspaper article THE JOURNAL RECORD

Death of the Poison Pill

Article excerpt

When Chubb, an insurance company known for the gilt-edged coverage favored by some of the wealthiest Americans, held its annual meeting last month at its headquarters in Warren, N.J., there was a prickly item on the agenda.

Shareholders, led by a union that owns $1.6 million of Chubb stock, a small fraction of the total, wanted to do away with the company's poison-pill provision, intended to foil hostile takeovers.

The company strongly opposed the move. Yet nearly 70 percent of the ballot-casting shareholders voted to get rid of the poison pill, backing the contention that a sale of the company -- whether through a hostile takeover or otherwise -- might well increase the value of the shares. The fate of the poison pill, a device created in the early 1980s by a New York lawyer to combat the advances of a horde of corporate raiders, is perhaps the hottest issue in corporate governance in this season of annual meetings. The provisions vary, but they tend to make hostile takeovers impractical. One technique is to issue large numbers of shares to existing shareholders, thus diluting the value of a hostile bidder's stake. Many poison pills that were instituted a decade ago are up for renewal, and shareholders at a half-dozen companies have taken steps to get rid of them. For years, shareholders have voted to recommend that companies get rid of poison pills, but management has found it easy to ignore these moves. Now, shareholders are upping the ante, trying to force change through bylaw amendments. The law on whether companies will have to comply is still evolving. A few days after the Chubb vote, 52 percent of the voting shareholders of Union Carbide supported such an amendment to eliminate their company's poison pill. This week, there will be votes at Quaker Oats and at US West, with a vote at J.C. Penney set for next week. At the heart of the debate over poison pills is whether they help or hurt the price of a company's stock. The most vocal shareholders, mainly public and union pension funds, say poison pills scare away potential bidders and keep prices down. Yet the 2,000 or so companies with poison pills say the very nature of the provisions is to prevent a potential buyer from taking control simply by amassing shares and, instead, to force negotiations with management for a higher sale price. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.