Poison Pills in Canada: A Reply to Dey and Yalden

Abstract

In their article in the December 1990 issue of the Canadian Business Law Journal, Dey and Yalden argue that poison pills are a useful and effective technique for ensuring that target shareholders receive a "fair" price for their shares on a take-over bid. As their title indicates, a fundamental assumption of their article is that acquirors somehow have an unfair advantage in the take-over contest, and that the poison pill is designed to "level the playing field". They argue that the elaborate edifice of corporate and securities law governing take-overs is insufficient to protect target shareholders from unfair treatment. They recognize that managers may abuse the pill, but argue that the danger of abuse by managers intent on entrenching themselves at the expense of shareholders is adequately controlled by fiduciary duties. In this response, the author argues that their position is seriously flawed. Although at the present time there is comparatively little Canadian evidence on the effects of poison pills, the great bulk of evidence from the United States vigorously suggests that pills are not in the best interests of shareholders. The author argues that Dey and Yalden have not attempted to refute that evidence. This is a serious omission that tarnishes their effort to offer a reasoned defence of the poison pill.