The Poison pill reference article from the English Wikipedia on 24-Apr-2004 (provided by Fixed Reference: snapshots of Wikipedia from wikipedia.org)

Poison pill

Poison pill is a business term referring to a strategy to avoid a hostile takeover bid.

Specifically the target of the takeover will take on large debts in an effort to make the debt load too high to be attractive (the company doing the takeover must pay the debts). Another strategy is to buy a number of smaller companies using a stock swap, which dilutes the value of the companies stock and makes it less attractive. The debts (or companies) can be sold off at a later date when the takeover is no longer a threat.

Another strategy especially in the Silicon valley is to change the terms of all employee's incentive stock options to make all stock options immediately vested if the company is taken over. Many employees can exercise their stock options and then dump the stocks. With the release of the golden handcuffs, many discontent employees may quit immediately after they've cashed in their stock options. This poison pill is designed to create an exodus of talented employees. In many high tech businesses, attrition of talented human resources often means an empty shell is left behind to the new owner.

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