Which of the Following Statements Regarding Poison Pills Is FALSE

question 39

Multiple Choice

Which of the following statements regarding poison pills is FALSE?

• A)Companies with poison pills are harder to take over,and when they are taken over,the premium that existing shareholders receive for their stock is higher.
• B)Because a poison pill increases the cost of a takeover,all else equal,a target company must be in better shape to justify the expense of waging a takeover battle.
• C)Poison pills also increase the bargaining power of the target firm when negotiating with the acquirer because poison pills make it difficult to complete the takeover without the cooperation of the target board.
• D)By adopting a poison pill,a company effectively entrenches its management by making it much more difficult for shareholders to replace bad managers,thereby potentially destroying value.

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Definitions:

Treasury Stock

Shares that were once outstanding and have been reacquired by the corporation, reducing the number of shares available on the open market.

Preferred Stock

A class of ownership in a corporation with a higher claim on assets and earnings than common stock, often with set dividend payments.

Common Shares Outstanding

The total number of shares of common stock currently held by all shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.