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Firm A has 10 million shares outstanding, currently trading at $5/share. They are worried about possible hostile acquisitions, so they adopt a poison pill that
Firm A has 10 million shares outstanding, currently trading at $5/share. They are worried about possible hostile acquisitions, so they adopt a poison pill that consists of call options that allow shareholders to purchase 1 additional share per share owned. The poison pill options will allow the shareholders to purchase their new share at a price of $2/share if a hostile bidder purchases 20% of the equity of Firm A. (Assume all options are exercised)
Show the impact of this poison pill if a bidder buys 20% of Firm A:
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