Essay model answers Example | Topics and Well Written Essays - 500 words

Model answers - Essay Example Pershing Square accounts 18% of J.C. Penney while Vornado 9.9%. J.C.Penney anticipate that if Pershing Square Capital’s Bill Ackman and its ally Vornado will make a position for a bid to take-over the company, J.C. Penney will swallow a â€Å"poison pill† to avert the siege. The plan will be activated the moment an investor will buy at least 10% of the company shares in addition to the shares that they already have. The poison pill is an age old strategy against hostile take-overs to dilute the holdings of an investor whose stake exceeds that threshold (Egain 2013). In the case o f J.C. Penney, if anyone builds a stake in the company in a move for a takeover, J.C. Penney will â€Å"issue a dividend of one right for each outstanding common share not owned by the raider. The right will have an exercise price of $55, and it’ll allow investors to, say, buy $110 worth of J.C. Penney shares for only $55 (Brown 2013). In effect, J.C. Penney board can buy back its stocks at a fraction of a penny if a hostile takeover is launched. The strategy was effective because J.C. Penney was able to avert the stand-off and potential takeover of Pershing Square Capital’s Bill Ackman. It also discouraged any potential hostile takeover from other companies and/or individuals. The poison pill was effective that the potential raider Bill Ackman of Pershing Square Capital mulled an exit from holding any shares of J.C. The poison pill may have been an effective strategy to avert any potential takeover. It was able to guard against the standoff from Pershing Square Capital but its shares fell 1.43% which is $13.14 the day after it announced the use of poison pill â€Å"leaving them off 33% on the year and 45% over the past 12 months† (Egan 2013). This was indeed a poison pill to swallow to avoid hostile takeover because the strategy compound the loss of J.C. Penney by the deterioration of its shares in the stock market. But as J.C. Penney’s CEO