Legal Issues. Poison Pill Plan

Poison pill is an important measure against a hostile takeover for anti-takeover defense, it emerged in the wave of American company acquisitions in the 1980s. In China, due to the obstacles of legal system and the capital market immature, poison pill is not applicable with the environment. However, the poison pill implemented by Sina company early in 2005 to deal with hostile takeover of Shanda refreshed the people. This paper is intended to be as an example of "Shanda acquired Sina case" and implemente of the poison pill of Sina for the entry point, analyze the two main controversial point of poison pill under Chinese and American Legal Perspective. Hope it will be helpful to Chinese Overseas-listed companies and anti-takeover legislation.This paper is divided into five parts:Part I is the introduction, which Firstly outlined the meaning and common form of poison pill. Poison pill also be called "stake diluted anti-takeover measures", its common forms include Preferred stock plan,Flip-over poison pill,Flip-in poison pill and Back-end plan. Then it introduced the basic situation of "Shanda acquired Sina case", and summarized the case of the two main controversive point: firstly, the poison pill anti-takeover measures how to weigh the pros and cons? secondly, do the target company's board have the right to set up a poison pill?Part II Contacted with the "Shanda acquired Sina case", analyzed the pros and cons of poison pill, and elaborated the legislative attitude between China and America. Compared to other anti-takeover measures, poison pill has unique advantages, but there are also unable to overcome its own shortcomings. The legislative attitude between China and the United States is different because of pros and cons of poison pill and differentce of systems and market environment. Most states courts (Delaware, as the representative) in United States recognized the legitimacy of poison pill; but in China, at present there is no clear legal basis for the application. Nevertheless, "the PRC Company Law" and other relevant laws and regulations amended as poison pill for the future China's capital markets mature implementation possible.Part III is the attribution analysis of the right to set up poison pill. This section firstly expounded reasons on the right to set up poison pill of target company's board in the controversial theory, then view the legal rights and obligations of sina board under Chinese and American legal perspective. According to the United States law, the company's board have right to set up poison pill, but must be followed by the "fiduciary dute" and "business judgment rule". Under Chinese law, the decision right of anti-takeover measures (Chinese law has not recognized the legitimate poison pill effectiveness) belong to target company's shareholders, and the company's directors has faithfully duty and diligence duty.Part IV is the inspiration of "Shanda acquired Sina case" to China. Firstly, inspiration to the overseas-listed companies are: compliancing with the host country (location) legal; setting up poison pill should be weighing the pros and cons; clever responsing poison pill when active acquisition. Secondly, inspiration to Chinese anti-takeover legislation revelation are: conditionally allowing for the use of poison pill; target company's board being allow for the adoption of certain anti-takeover measures; perfecting the right to exclude shareholder vote system, and safeguarding the interests of small and medium shareholders.Part V is the conclusion of this paper, a summary of the contents.