Share rights plans
A)vary in detail but are all designed to increase the cost of the firm to an unfriendly acquirer.
B)with flip-in provisions allow existing shareholders to purchase additional shares at market value without incurring any transaction costs.
C)require any unfriendly acquirer to exchange two shares in the target firm for every one share in the merged firm.
D)allow shareholders to purchase additional shares at below market value at a time chosen by the rights holder.
E)grant stock dividends to their holders in addition to the normal cash dividends.

Question

Quizplus · Accepted Answer

Share rights plans, also known as poison pills, are designed to increase the cost of acquisition for an unfriendly acquirer by diluting the value of shares or making them expensive. The details of various share rights plans may differ, but their objective remains the same.

Answer: B 
 Flip-in provisions in a rights plan offer existing shareholders the opportunity to purchase additional shares at market value without incurring any transaction costs, thereby making it expensive for an acquiring firm to gain control of the target firm.

Answer: C 
 This statement is incorrect. A stock rights plan with a "exchange" provision requires the acquiring firm to exchange its shares for new shares at a favorable price or ratio, thereby increasing the cost of acquisition for the acquirer.

Answer: D 
 This statement is incorrect. Share rights plans do not allow shareholders to purchase shares at below market value. Instead, they enable existing shareholders to purchase additional shares at a fair or market value, thereby diluting the value of shares and making it expensive for an acquiring firm to gain control of the target firm.

Answer: E 
 This statement is incorrect. Share rights plans do not grant stock dividends to their holders. Instead, they offer existing shareholders the opportunity to purchase additional shares at a fair or market value, or dilute the value of shares to make it expensive for an acquiring firm to gain control of the target firm.

Share Rights Plans