Hostile Takeover and Defense Tactics

Step 1: Hostile Bid Offer Price and Total Deal Value

Offer Price per Share = $20.00 × (1 + 0.25) = $25.00

Total Offer Value = $25.00 × 100,000,000 = $2.5 billion

The offer price is the number the board must beat or credibly threaten to beat — it's the benchmark every defense tactic gets measured against, since a fiduciary board ultimately has to show shareholders it extracted more value than simply accepting this bid.

Step 2: Acquirer's Stake Before the Pill Is Triggered

Acquirer's Shares = 100,000,000 × 0.12 = 12,000,000 shares (12.0% ownership)

This is the acquirer's toehold — a stake built up quietly, kept below the pill's 15% trigger so the rights plan doesn't activate while shares are still being accumulated. Toeholds are common in hostile situations because they give the acquirer votes and a lower average cost basis before the target price runs up on deal rumors.

Step 3: Acquirer's Diluted Ownership After the Poison Pill Is Triggered

Non-Acquirer Shares = 100,000,000 − 12,000,000 = 88,000,000

New Non-Acquirer Shares After Rights Exercise = 88,000,000 × 2 = 176,000,000

Total Shares Outstanding After Pill = 12,000,000 + 176,000,000 = 188,000,000

Acquirer's Diluted Ownership % = 12,000,000 / 188,000,000 = 6.4%

The poison pill lets every shareholder except the acquirer buy new shares at a steep discount, so the acquirer's stake goes from 12.0% to 6.4% without the acquirer selling a single share. This is the pill's real weapon: it doesn't block a takeover outright, it makes continuing to buy — or even standing still — punitively dilutive, which forces the acquirer to negotiate directly with the board instead of accumulating shares on the open market.

Step 4: White Knight's Competing Offer

Using the pre-bid share price ($20.00) and the white knight premium (40%, 0.40):

White Knight Offer Price = $20.00 × (1 + 0.40) = $28.00

The white knight's $28.00 bid is $3.00, or 12.0%, above the hostile bidder's $25.00 offer. A friendlier acquirer topping the hostile bid gives the board a way to satisfy its fiduciary duty to maximize shareholder value while avoiding a change of control on terms it didn't choose — the pill buys the time needed to find and negotiate with that white knight in the first place.

Final Results

• Hostile Bid Offer Price: $25.00 per share ($2.5 billion total)
• Acquirer's Ownership After Pill Trigger: 6.4% (down from 12.0%)
• White Knight Counter-Offer: $28.00 per share

With the pill in place and a higher white knight bid on the table, the board is now negotiating from strength: it can either push the hostile bidder to raise its offer toward $28.00, redeem the pill in exchange for a better price, or recommend the white knight's deal to shareholders outright.

Would you like to explore how a staggered (classified) board changes the acquirer's timeline even after the pill is eventually redeemed?