M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Monday, January 25, 2010

Krispy Kreme's Poison Pill

The Krispy Kreme board is doing a little revisiting of its pre-transaction planning.  Last week it adopted a revised shareholder rights plan to replace the expiring plan that it had in place.  The revised plan is similar to the first, with the notable exception that the revised plan expires in three years rather than ten.  The term limitation on shareholder rights plans seems to be a growing trend amongst firms adopting such plans.  On the other hand, KKD shareholders are not being asked to approve the new rights plan.  From the board's announcement:

The new Rights Plan was adopted to deter abusive takeover tactics, but it was not adopted in response to any specific effort to acquire control of the Company.  The Company's current market capitalization makes the Company and its shareholders especially vulnerable to a creeping acquisition of control whereby a person can acquire a substantial percentage of the Company's outstanding stock prior to making any public disclosure regarding its control intent and without paying a control premium. 

The mechanics of the new Rights Plan are similar to the existing Rights Plan. In general terms, and as in the existing Rights Plan, the rights that will be issued under the new Rights Plan are not exercisable until such time as a person or group becomes the beneficial owner of 15 percent or more of the Company's common stock immediately following the expiration of the existing Rights Plan. The rights may cause substantial dilution to a person or group that acquires 15% or more of the Company's common stock unless the rights are first redeemed by the Board of Directors. Unlike the existing Rights Plan (which had a ten-year term), the new Rights Plan only has a three-year term.

You can find a copy of the revised rights plan here.

-bjmq

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