A flip-over is one of five types of
poison pills in which current
shareholder
A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal o ...
s of a targeted
firm
A company, abbreviated as co., is a legal entity representing an association of people, whether natural, legal or a mixture of both, with a specific objective. Company members share a common purpose and unite to achieve specific, declared ...
will have the option to purchase discounted
stock
In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a compan ...
after the potential
takeover
In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to ...
. Introduced in late 1984 and adopted by many firms, the strategy gave a
common stock dividend
A common stock dividend is the dividend paid to common stock owners from the profits of the company. Like other dividends, the payout is in the form of either cash or stock. The law may regulate the size of the common stock dividend particularl ...
in the form of rights to acquire the firm's
common stock
Common stock is a form of corporate equity ownership, a type of security. The terms voting share and ordinary share are also used frequently outside of the United States. They are known as equity shares or ordinary shares in the UK and other Comm ...
or
preferred stock
Preferred stock (also called preferred shares, preference shares, or simply preferreds) is a component of share capital that may have any combination of features not possessed by common stock, including properties of both an equity and a debt inst ...
under market value. Following a takeover, the rights would "flip over" and allow the current shareholder to purchase the unfriendly competitor's shares at a discount.
[Hitt ''et al.'' (2001), p. 74.] If this tool is exercised, the number of shares held by the unfriendly competitors will realize dilution and price devaluation.
See also
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Mergers and Acquisitions
Mergers and acquisitions (M&A) are business transactions in which the ownership of companies, other business organizations, or their operating units are transferred to or consolidated with another company or business organization. As an aspec ...
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Takeover
In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to ...
*
Industrial organization
In economics, industrial organization is a field that builds on the theory of the firm by examining the structure of (and, therefore, the boundaries between) firms and markets. Industrial organization adds real-world complications to the perf ...
Footnotes
References
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Mergers and acquisitions
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