Flip-In Poison Pill

What is Flip-In Poison Pill?

Flip in the poison pill is a kind of strategy in case of which the shareholders of the target company, not the shareholders of the acquiring company, are allowed to buy the target company’s share at a discount which helps the target company to dilute its share value.

There are five types of poison pillsTypes Of Poison PillsPoison pill is a psychologically based defensive strategy that protects minority shareholders from an unprecedented takeover or hostile management change by increasing the cost of acquisition to a very high level and creating disincentives if a takeover or management changes happen in order to alter the decision maker’s mind.read more available to companies that act as defense strategies for companies. Flip-In is one of these five poison pills. It is a defense strategy where the existing shareholders of a company are allowed to purchase more shares in the target company at a discount. The target company uses this Flip-In strategy to keep at bay hostile takeoverHostile TakeoverA hostile takeover is a type of acquisition of a target company by an acquiring company in which the target company's management is not in favour of the acquisition but the bidder still uses other channels to acquire the company, such as acquiring the company through tender offer by directly making an offer to the public to buy the shares of the target company at a pre-specified price that is higher than the prevailing market prices.read more by diluting the value of the company with the increased available shares. It leads to a reduction in the percentage of ownership of the potential acquiring company. Only existing shareholders are allowed to purchase the shares, not acquiring shareholders.

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Breaking Down Flip-In Poison Pill

The Flip-In strategy is the provision mentioned in the company’s bylaws. So whenever a shareholder acquires a certain number of shares, generally 20-50%, then the Flip-In poison pill is triggered into action. If we consider a shareholder’s point of view, a Flip-In helps in making quick money because the new shares are purchased at a discount. For the shareholders, this difference between the market price of the share and its discounted purchase price is considered to be the profit.


Flip-In Poison Pill vs. Flip-Over Poison Pill

Final Thoughts

The Flip-In poison pill provision deters the buyer from crossing the ownership threshold that eventually triggers the rights plan by confronting it with the prospect of substantial dilution. Every holder except the buyer is allowed to purchase the new shares at a 50% discount to the current market. The buyer’s ownership interest gets diluted if the flip-in strategy of the rights plan is implemented. The actual amount of dilution is dependent on the exercise price of the rights, but it is quite substantial enough to make triggering the rights economically unviable.

Flip-in Poison Pill Strategy Video


This article has been a guide to Flip-in Poison Pill Strategy. Here we discuss the meaning of Flip-in along with practical examples and its differences from the flip-over poison pill. You may also learn more about M&A from the following articles –

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