One Man’s Poison...

Poison Pills have been structured and adopted for 25 years now to shun uninvited bidders. They typically use mass dilution as a deterrent when acquisitions cross a threshold such as ten or twenty percent of a company’s issued and outstanding stock without board approval. For example, when the uninvited bidder buys in excess of ten percent of the target’s stock, then investors who owned before the bidder, can buy more shares at a deep discount. This dilutes the bidder and makes the transaction more expensive. Potential bidders were usually extremely careful not to trigger such a poison pill. A newer flavor of poison pill lowered the threshold to 4.99% and was structured to protect a company’s NOL’s, the idea being that the NOL’s will be lost in a change of control. In December, 2008, Versata Enterprises triggered an NOL poison pill of Selectica. Selectica’s NOL was $150 million. Versata acquired 5.1% and Selectica’s board lowered the pill threshold from 15% to 4.99%, but grandfathered Versata and others. Then Versata increased its ownership to 6.7% triggering the pill. The case went to trial with a central fight over the validity of the structure and application of the pill. Watch this space….
-- Paul Marotta