Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Suicide Pill

What it is:

The suicide pill is a takeover defense mechanism whereby a target company takes self-destructive measures to thwart a hostile takeover.

How it works (Example):

If a company becomes the target of a hostile takeover by another company, it may engage in a self-defeating move which renders it no longer attractive to the acquiring company. In certain instances, such a move may be so detrimental to the acquiring company that it threatens to bankrupt both. Such a tactic qualifies as an extreme version of a poison pill tactic. It is usually carried out by taking on an unnecessary and disproportionate amount of debt.

Why it Matters:

If a company decides to confront a hostile takeover using a suicide pill approach, it must carefully calculate the effects to its own long-term well-being. A takeover is sometimes more attractive than bankruptcy.