| Poison pill is considered to be an effective and widely used anti-takeover strategy against hostile takeovers. This strategy is conducted via issuing preferred shares or other special warrants aiming at stocks dilution or certain equity arrangement. Once the strategy is triggered, the target company would become worthless to be merged, and thus frustrates the hostile takeovers. Poison pill was designed by Martin Lipton, an American lawyer and was put into practice in 1982 in the case Moran v. Household. This tactic was widely used after its legitimation in the year of 1985.Mergers and acquisitions are quite prosperous in Chinese domestic capital market, and hostile takeovers are not novel to the participants. But we have to admit that poison pill has seldom been used in anti-takeovers in domestic market. By the end of the year 2015, a hostile takeover case between two entities, Wanke(the target company) and Bao Neng(the raider) caught people’s attention, which made people believe that poison pill might be, for the first time, taken into practice in domestic market. However, on December 23 rd, 2015, the chairman of board of Wanke,announced that they would not use poison pill to fight the hostile bidder. So far, nopoison pill has been used in Chinese domestic capital market, and it is necessary to dig into the reaons.Whereas it being the abovesaid fact, this thesis is to analyze the legal system and the practical anti-takeover cases on the basis of the study of the mechanism of poison pill from the aspects of relatively legal rules and business practice, and try to find out the potential applicability of poison pill in Chinese domestic capital market.This thesis is divided into two parts, the introduction and the main body. The introduction contains the cause of the study and the literature review; and the main body includes five parts as follow:The first part is the illustration of the mechanism of poison pill as well as its effectiveness in anti-takeovers. In this part, the characters of a poison pill would be made clear by examples in overseas markets. The core of a poison pill refers to the rights of the target company to alter the structure of the shareholding(which means the change of the corporate capital). The commencement of poison pill is rooted in less-restricted capital system and stock issuance system and was legitimated by several judgments by Delaware courts. Red chips(overseas-listed Chinese firms) have seen practices of poison pills to fight against the hostile takeovers, but such implementations are all conducted in the American capital market. No poison pill has been seen in domestic-listed companies’ anti-takeovers strategies.The second part is the analysis of the development of the Chinese domestic capital market. This part is constituted by anti-takeovers legislation and the anti-takeovers practice analysis. As for the legislation analysis, the legal rules are illustrated in this part by concluding the restrictions on the target company and the bidders, as well as the effectiveness of anti-takeovers action. That too many obstacles on hostile takeovers, the right of initiating a anti-takeover action belongs to the board of shareholders could be the summary of this part. As for the case analysis part, four the most well-know hostile takeovers in recent years in Chinese domestic market(including the unsettled battle between Wanke and Bao Neng) have been chosen to reveal the dissatisfactory outcome and efficiency by analyzing their hostile takeovers and anti-takeovers tactics, as well as the result of the anti-takeovers actions.The third part is the analysis of the reasons why poison pills are seldom conducted in the Chinese domestic capital market under the conclusion in chapter one and two. The main reason lies on the statutory capital system which disables domestic corporate to authorize the board of directors to initiate a poison pill; an additional reason is that the domestic stock issuance system is far too strict for the target companies to respond to the hostile takeovers. Some other reasons, such as the doctrine of equality of the shareholders, the board-centric of shareholders and the lack of attention to the hostile takeovers, contribute to the situation too.The fourth part is the prospect prediction of the implementation of poison pill in domestic market and how it is going to affect the market from the positive and the negative aspects. As for the positive aspect, it is held that once the poison pill could be undertaken in domestic market, the efficiency of mergers and acquisitions could boost to a much higher level, and to prevent corporate deadlock which is considered to be the optimal and the main result a poison pill would have bring in. As for the negative aspect, the implementation of a poison pill might have cause a disputes on the duty of directors, or on the contestations on benefits between the shareholders and the corporate; the poison pill might have, as well, incur the arbitraging(by the directors or the shareholders) via stock repurchases by the shareholders.The fifth part is the concluding part of the thesis. In this part, the function of poison pill would be emphasized from the adaption of the legal restrictions to the potential influence to the domestic capital market. To initiate a poison pill to defend a hostile-takeover, a looser capital system should be made accessible; more freedom should be authorized to the target company on issuing stocks. However, the board-centric of shareholders in corporate law and in the corporate governance, has withheld the right of poison pill initiation in the hand of the board of the shareholders.Consequently, if we want to make any change to the stock issuing system in accordance to the need of the poison pill, the board-centric of shareholders has to be swerved to the board-centric of directors simultaneously. It would be time-consuming in this evolution. But seeing from the upcoming registration system of stock issuing,this great prospective is at horizon. |
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