Public M&A – The Availability Of The Poison Pill Defence In Ireland

Author:Mr Fergus Bolster and Aoife Trueick

"Firstly, on the moment of his awakening, the thought occurred to him: 'Why do I lie here? The night is wearing on, and at daybreak it is likely that the enemy will be upon us.'" Xenophon, Anabasis

Since 2009, the number of Irish registered companies listed on US exchanges, principally the NYSE and Nasdaq, has grown steadily and currently numbers 30. These companies are typically holding companies for large international groups, in many cases with global operations. A number of these groups located here through corporate migration and inversion transactions, while others first listed with an Irish parent. Given a number of factors, including, in particular, the buoyant cross-border M&A activity of recent years and the growth of global activism, we are frequently asked by companies, investors and other market participants whether, and to what extent, poison pill defences are permitted in Ireland.

In the US, the poison pill is a well-established defensive measure which may be utilised against a hostile bidder. Most poison pill strategies involve a form of dilutive discrimination against an unwelcome acquirer in the form of a shareholders' rights' plan. This is a kind of spring trap which makes an unfriendly takeover prohibitively expensive. Though endless variations exist, these types of pill generally have certain common features.

A rights' plan typically enables a target company to issue "flip-in" rights, "flip over" rights or both. Under a "flip-in" plan, the holders of a company's ordinary shares (i.e., common stock) are issued rights for each ordinary share held. These rights give them an option to buy additional ordinary shares at a discount to the market price when the rights become exercisable, typically, upon an unwelcome acquirer crossing a particular share ownership threshold. For example, the rights might become exercisable at up to a 50% discount from market price in the event an acquirer purchases more than 15% of the ordinary shares in the target company. All the shareholders except the unwelcome acquirer can exercise their rights to purchase shares at the discount, resulting in a significant dilution in the shareholding of the acquirer and making its bid more expensive. In most cases, rights can be redeemed at a nominal value prior to the triggering event.

A "flip-over" plan allows rights' holders to purchase shares in the unwelcome acquirer at a similar discount upon the completion of a subsequent merger, and is...

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