Monday, September 2, 2013
Carlos Slim's America Movil has threatened to withdraw from its offer to purchase the 70% of the Dutch mobile carrier, Royal KPN NV, that it doesn't already own. America Movil's change of heart came after Royal KPN deployed it's poison pill to defend against the unwanted offer.
Now, the poison pill deployed by Royal KPN is different from an American poison pill. Remember, the power of the US-styled poison pill comes from the threat that it might be deployed and the difficulty presented in acquiring control once the pill is deployed. The defensive power of the Dutch pill comes from an actual transfer of control from public stockholders to a controlled foundation. The WSJ has a good description of how it works:
In the 1980s and 1990s, many Dutch firms set up defenses to protect themselves against hostile takeovers or activist investors. Although most barriers have been removed, many listed companies still have the possibility to block unsolicited takeover attempts through foundations they created.
Companies grant these foundations (in Dutch: Stichting) a call-option to buy preference shares which, if activated, allows them to take control of the company for a certain period of time.
The defense is barely used, however. Experts say it is a measure of last resort that deters investors in ordinary shares and only buys time to look for alternative strategic options.
In KPN’s case, the Foundation Preference Shares B KPN were set up in 1994 following the privatization of Koninklijke PTT Nederland NV, the former mother company of KPN. Its board comprises lawyers and former top executives at other Dutch companies, some of whom also sit on the boards of other foundations.
By deploying the pill, control is temporarily transferred from public stockholders to the foundation forcing a potential acquirer to negotiate with the foundation if the acquirer wants to gain control. The effect is the same as with the US-styled pill - putting the board (in this case the foundation board) in between the tender offeror and the shareholders. However, because the preference shares issued to the foundation are time limited, unlike the standard US poison pill, the Dutch pill is only a temporary defense. It's not a 'just say never' defense, just a 'not right now' defense.