US CMA Part 2 · Chapter 4 · Question 12 of 15
A target company's board adopts a plan under which, if any bidder acquires more than 15% of its shares, all other shareholders may buy additional shares at a deep discount. This takeover defense is known as a:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Poison pill (shareholder rights plan)
Explanation
A poison pill dilutes a hostile bidder by allowing other shareholders to buy shares cheaply once a threshold is crossed, making the takeover much more expensive. A golden parachute is a generous severance package for executives, a white knight is a friendlier alternative acquirer, and greenmail is repurchasing the raider's shares at a premium.
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