Words That Mean the Opposite: "Shareholder Rights Plan"

Today's entry:  "shareholder rights plan."  Example usage:

Less than a week after activist investor Carl Icahn announced a 10 percent stake in Netflix, the online video company is moving to protect itself against hostile takeovers.

The Los Gatos, Calif., company said Monday that it has adopted a shareholder rights plan.

Icahn disclosed his stake in Netflix Wednesday.

Under the plan, rights are exercisable if a person or group acquires 10 percent of Netflix, or 20 percent in the case of institutional investors, in a deal not approved by the board.

This is basically a poison pill that can be triggered by the Board that can dilute the value of a hostile investor's share of the company.  What it does is force investors to negotiate with management for takeover of the company, rather than directly with shareholders.  As such, it is actually a "management rights plan" as it empowers management at the expense of shareholders  (as evidence of this, in a rising market today Netflix stock fell on this news -- shareholders know that such moves have nothing to do with their well-being).  Managements use it either to protect their jobs (by disallowing hostile takeovers their shareholders would otherwise support) or at least to get a nice payoff on the way out the door as the price for agreeing to the deal.

  • Russ R.

    I'm not usually a fan of regulatory intervention in corporate affairs, but to protect outside shareholders (non-mgmt) from management and insider shareholders (mgmt affiliates) two simple rules should apply to all publicly-listed companies:

    - Any benefit offered to any shareholder (outside or insider), must be similarly offered to all outside shareholders (though not necessarily insiders).
    - Any involuntary restriction imposed on any outside shareholder must be similarly imposed upon all insider shareholders.

    Under these rules, a rights offering to the existing shareholders would also have to be offered to the hostile investor... resulting in no dilution.

  • obloodyhell

    Don't worry, after he's re-elected, Mr. O will announce his "dollar protection plan", which will have a similar effect on the money in your pocket.