Legal Definitions - pill

Definition: A pill is a defense mechanism used by corporations to prevent unwanted takeover bids. It is also known as a poison pill. Shareholders are given the right to acquire equity or debt securities at a favorable price to increase the bidder's acquisition costs. This makes the takeover prohibitively expensive.

Example: If a company is being targeted for a takeover bid, the board of directors may implement a poison pill. For instance, they may offer shareholders the right to purchase additional shares at a discounted price, making it more expensive for the bidder to acquire a controlling interest in the company.

This example illustrates how a poison pill can be used to deter hostile takeovers by making them too expensive for the bidder.