1966 Words8 Pages
Poison Pill Use in the Banking Industry Introduction The 1980s was an era of expansive mergers and acquisitions fueled by the popularity of corporate raids. Although this drastically changed the landscape ofmany industries, the banking industry was relatively untouched. Commercial banks were protected from hostile takeovers by federal regulations. The McFadden Act of 1927 and the Bank Holding Company Act of 1956 supported the existence of 24,495 small banksl in 1985.However, by 2003 there were 11,021 small banks and 80 banks had adopted a poison pill plans (Critchfield, Davis, Davison, Gratton,Hanc, Samolyk, 2004). The Riegle Neal Interstate Banking and Branching Efficiency…show more content…
The Takeover Code also restricts the corporate actions of target companies during the offer period, such as transferring assets or entering into material contracts and prohibiting issue of any authorized but unissued securities during the offer period . Furthermore, the shareholder rights plan sanctions the target companies to issue shares at a discount and warrants which convert to shares at a discount, even without shareholder approval, which is illegal in the Indian context unlike the U.S. where companies are permitted to do so. The DIP Guidelines require the minimum issue price to be determined with reference to the market price of the shares on the date of issue or upon the date of exercise of the option against the warrants. Such issue must also be approved by shareholders. Without the ability to allow its shareholders to purchase discounted shares/options against warrants, an Indian company would not be in a position to dilute the stake of the hostile acquirer and also seeking shareholder approval in the event of a takeover attempt is a very time-consuming process, thereby making impossible poison pills to operate within the existing Indian legal framework. Apart from this, in the event of a takeover bid, all the directors of the target company may be removed in a single shareholders meeting, as permitted under the Companies Act, 1956, thus making futile the Staggered Board defence available to foreign companies. Thus,
Open Document