Poison pills were established over 40 years ago in the U.S. market, typically taking the form of a highly dilutive share issuance authority that can be used as a defence mechanism to protect against unsolicited takeover attempts. Over the last decade, poison pills have fallen out of favour with investors and companies alike, and fewer have been adopted because they are often seen to entrench poor management rather than enable the greatest value creation for investors.
That all changed this season: 59 poison pills were adopted during the 2020 proxy season, compared to just 21 in all of 2019 (source: Council of Institutional Investors).
This was due to companies worrying about their vulnerability to hostile bids from activist funds and potential opportunistic acquirers due to extremely depressed share value, or the anticipation of significant net operating losses, which in turn create tax credits that are seen as attractive assets.
Generally, we are not supportive of the adoption of poison pills, and where companies have implemented them without explicit shareholder approval, we would typically vote against those Board directors who are considered responsible. This year, given the unique circumstances that the pandemic caused, we were more accepting of companies that adopted poison pills, as long as they had a short shelf life and were not overly restrictive. In these instances, we did not vote against Board members where these protections were in place, but will consider reverting back to our original voting stance next year, pending the state of the market at that time.