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What is a Suicide Pill?

The suicide pill is a takeover defense mechanism whereby a target company takes self-destructive measures to thwart a hostile takeover.

How Does a Suicide Pill Work?

If a company becomes the target of a hostile takeover by another company, it may engage in a self-defeating move which renders it no longer attractive to the acquiring company. In certain instances, such a move may be so detrimental to the acquiring company that it threatens to bankrupt both. Such a tactic qualifies as an extreme version of a poison pill tactic. It is usually carried out by taking on an unnecessary and disproportionate amount of debt.

Why Does a Suicide Pill Matter?

If a company decides to confront a hostile takeover using a suicide pill approach, it must carefully calculate the effects to its own long-term well-being. A takeover is sometimes more attractive than bankruptcy.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.