Few Refills on Poison-Pill Prescriptions

At least a dozen companies have moved to discontinue anti-takeover defenses this year.
Stephen TaubMarch 3, 2004

Bowing to pressure from rank-and-file shareholders, companies are doing away with their “poison pills” at a record rate.

A poison pill — a defense against hostile takeovers devised by the attorney Martin Lipton some 20 years ago — is designed to discourage an acquisition by making it more costly, usually through the issuance of preferred stock with severe redemption provisions.

Currently most such anti-takeover defenses — like the one adopted by Edison International, the parent of utility Southern California Edison — have been given the more palatable name of “shareholder rights plan.” At last year’s annual meeting, however, Edison shareholders spoke up for their rights when they approved a non-binding proposal on the company’s poison pill.

On Monday, Edison International announced that its board of directors will not trigger the company’s shareholder rights plan without prior approval by the company’s shareholders, and that it will not extend the plan, which is scheduled to expire in November 2006. In addition, Edison will not adopt a future plan without seeking shareholder approval unless fiduciary reasons dictate otherwise.

Edison’s announcement is consistent with a larger trend that has seen at least a dozen companies move to dismantle their poison pills in 2004. Last month alone, Circuit City Stores Inc., FirstEnergy Corp., BB&T Corp., PG&E Corp., and The Goodyear Tire & Rubber Co. announced plans to terminate their poison pills, according to SharkRepellent.net.

Only 29 companies did so in 2003, and just 18 in 2002.

The rate at which companies are removing these plans has hit levels unprecedented “since the emergence of the poison pill in the early 1980s,” notes the Web site. Last year, adds the site, the number of non-binding shareholder proposals to terminate poison pills set a record of 99, receiving an average of 59.1 percent of Yes/No votes.

“Boards are becoming more concerned with the appearance of good corporate governance than with managing their risk of hostile takeovers,” maintained SharkRepellent.net. And given the continuing influence of Sarbanes-Oxley and the rash of top executives either in prison or on trial, boards of directors are increasingly likely to heed their shareholders’ wishes.