See: Poison Pill.
A poison pill may sound like something a spy keeps sewn into their shirt collar in case they get captured. But, in this case, it relates to a method to avoid unwanted corporate takeovers. It's like the mace of the M&A world.
The term "poison pill" refers to diverse array of strategies meant to prevent a hostile takeover from taking place. Another company starts eyeing your firm, making unwanted offers. You try to say "no," but they just cut you and the rest of management out of the loop. They are going directly to shareholders. Things just got...hostile.
The voting poison pill plan represents a particular structure of defense. It's meant to dilute the stake the hostile company has acquired. It works by distributing shares with super voting privileges to your other shareholders (not the company trying to take you over...their shares don't get the extra voting power). Even though the company attempting the takeover has acquired a large number of shares, they only have a large economic interest in your company. The super voting rights you distributed to everyone else puts the hostile bidder out in the cold when it comes to making company decisions.
All of the other shareholders can outvote them, keeping them from gaining control of the company.
Related or Semi-related Video
Finance: What is Cumulative Voting?6 Views
Finance, a la shmoop. What is cumulative voting? All right people there are two
flavors of voting in the land of common stock, there's cumulative and statutory. [Two ice cream cones held next to each other]
Cumulative voting just somehow sounds cooler, doesn't it? It allows teams to [Guy points at the ice cream cone and drops it]
join forces and pool their votes cumulatively
for target candidates to get elected that is it allows for the disaggregation,
$5 word there, of board members when voting. That is if a shareholder has one [5 dollar price tag appears]
percent of the common shares outstanding of a company and cumulative voting is [Pie chart showing the small 1% holding]
allowed and there are five candidates being elected, well that shareholder can
vote effectively five percent of their total shares voteable for just one
candidate. Said graphically with blood and guts it looks like this. Cumulative [Table showing shares equalling number of votes per candidate]
voting helps the little guy to have a big presence, with only 1% of the shares [Kid sat at a shareholder meeting]
the little guy can be felt as a 5% holder which makes you know him or her a [Kid jumping to hit a Mario coin box]
relatively major player. It also encourages boards to rotate seats [People swapping seats in the boardroom]
gradually, that is if there were seven seats coming up for election while that
1% could feel like 7% which starts to get dangerous in a contentious board and [The people in the boardroom start fighting]
company situation. You can imagine someone who only owns a small part of
the shares outstanding could elect a whole lot of board. Yeah that'd be a [Wooden boards replace the people in suits]
little scary. Well, score one for the little guy... [Kid laughing will an evil face]
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