In finance, the term “suicide pill” refers to a potentially hazardous tactic used by companies to prevent hostile takeovers. In every case, a suicide pill renders a company unattractive or unaffordable for attempted acquirers, but it can potentially damage the company.
Typically, a suicide pill involves the enactment of cum rights which enable longstanding company’s shareholder to purchase heavily discounted, newly issued shares. The resulting injection of low-cost shares results in a major drop in individual share value, and consequently in the share of the company held by the potential acquirer. At the same time, the issuance of new shares greatly increases a company’s debt, and can lead to its bankruptcy.