In case you weren’t watching Business Wire on Friday night at 11 p.m., CNET put out a release saying they adopted a shareholder rights plan, otherwise known as a poison pill.  Hedge fund Jana Partners is pushing for a major shake up at the company, amassing an 8 percent stake in its voting shares.
    
One view is is that poison pills can come off as shareholder unfriendly. In theory, a rights plan is designed to fend off an undesired acquirer–especially one the target feels is trying to buy it on the cheap. But that doesn’t necessarily gel with shareholders’ feelings about whether they want the company sold.

With private equity and corporate buyers paying top dollar to shareholders over the last few years (prior to the credit crunch), poison pills fell out of favor somewhat.  What hasn’t fallen out of favor is the percentage of companies resorting to them when they’re in play. Bear with us.
    
There were 100 first time poison pill adoptions in 2003, according to research firm FactSet SharkRepellent. In 2007, that number fell to 42. 
    
Renewal rates for such plans have also plunged. In 2001, 84 percent of companies with poison pills renewed them. Last year, it was 30 percent, FactSet SharkRepellent says.
    
But there is one element of the poison pill strategy that’s on the upswing:  Implementing it when the company is “in play.”

Of the 100 pills swallowed in 2003, 11 percent of them were adopted when an unwanted suitor came knocking.

But of the 42 pills adopted last year, 24 percent of them came when a company was in play, according to FactSet SharkRepellent.

That’s could be a reflection on the wave of activist hedge funds -formerly known as corporate raiders-that barrelled into the M&A scene in the last few years. Names like Icahn, Ackman, Peltz, Ubben, Loeb may make some companies realize that a pill could be the only defense mechanism against a forced sale.

If activists have proven anything, however, in their rise to prominence, it’s that it is tough to kill off an auction. Activist investors, the successful ones anyway, are relentless, rarely letting go of a target until the fund has forced a change.

Will CNET’s pill ward off Jana? It seems that shareholders don’t think so. The stock rose 4 percent on Monday.

(Michael Flaherty and Megan Davies)

(Image. www.hauntedportraits.com)