Having been reading the various articles regarding the proposed purchase of Yahoo by Microsoft, I see that the former has a “poison pill” in the form of shareholder rights to grant 15% additional shares. According to the Wikipedia article on poison pills, this right is granted only to the shareholders NOT involved in the takeover bid.
My question is: how is this legal? How can they grant certain rights to some shareholders and not to others, regardless of their intentions? Or is the right granted only to shareholders who had their position in the stock before the bid, and all shares purchased after the bid do not have the right?
The point is, the would-be takeoverers are not shareholders until the bid is accepted by the board. If the acquiring company can’t buy the shares on the open market, they may engage in a proxy battle by which they try to persuade all the other shareholders to elect a new board which will accept the bid.
To prevent this, a poison pill allows the existing board to issue more shares, diluting the power of the proxy voters.
When these additional shares come onto the market, what’s to stop the company engineering the hostile takeover from just buying up the same portion they have of the rest of the company?
A company can make whatever restrictions they want on stock, subject to SEC regulations and things like civil rights law (you couldn’t restrict stock to whites only, for instance).
But within those limitations, a company can set rules for its stock. I’ve seen examples where one company sold A and B stock. Only the owners of the company could own A stock, which was always 51% of outstanding shares. Everyone else got B stock.
It’s a contract, and if you don’t like the stipulations, you can buy stock elsewhere.