HP Using the Poison Pill Tactic in Xerox Takeover Bid

PC manufacturer HP Inc. (HPQ) announced that it will be adopting the poison pill tactic in the ongoing takeover bid by printer manufacturer Xerox Holdings Corp (XRX).

Simply defined the poison pill tactic is a plan used by the target company with an aim of making the acquisition conditions hostile for the acquirer. This tactic involves increasing acquisition costs, creating big incentives and allowing existing shareholders to purchase new shares at discounted prices among other ways.

In most cases the poison pill is always used to push the acquirer away or push for better rights for shareholders of the target company.

According to this poison pill tactic HP is aiming at stopping investors from accumulating more than 20% stake in the company. Additionally, if a certain group acquires 20% stake in HP other shareholders who don’t belong to the group will be able to acquire additional shares at discounted prices a scenario which always results to dilution of shares.

In a statement HP said this tactic is not formulated to make it hard for any merger deal to sail through rather it should help any acquirer to consult with HP first in case of any proposed merger deal.

“The rights will not prevent a combination of HP with another business, but should encourage Xerox or anyone else seeking to acquire the Company to negotiate with the Board prior to attempting to impose some combination that is not in the best interests of the HP shareholders,” said HP.