The suicide pill is a takeover defense mechanism whereby a target company takes self-destructive measures to thwart a hostile takeover.
How Does a Suicide Pill Work?
If a company becomes the target of a hostile takeover by another company, it may engage in a self-defeating move which renders it no longer attractive to the acquiring company. In certain instances, such a move may be so detrimental to the acquiring company that it threatens to bankrupt both. Such a tactic qualifies as an extreme version of a poison pill tactic. It is usually carried out by taking on an unnecessary and disproportionate amount of debt.
Why Does a Suicide Pill Matter?
If a company decides to confront a hostile takeover using a suicide pill approach, it must carefully calculate the effects to its own long-term well-being. A takeover is sometimes more attractive than bankruptcy.