When corporations install anti-activist poison pills, they are less likely to implement new share buybacks and their operationally-focused capital expenditures tend to be higher, explained UC Berkeley School of Law professor Ofer Eldar.

“When activists show up you often see hikes in share buybacks, lower investments in the business, and CEOs being ousted,” Eldar said in the most recent episode of Activist Investing Today podcast. “We saw that [when pills are installed] there is a lower likelihood of 13D filing or proxy contest, which shows that the pill is effective in deterring activists, and we see a lower rate of CEOs being replaced following hedge fund scrutiny. All of this taken together shows that the anti-activist pill can be a very consequential device.”

In a wide-ranging conversation about the evolution of poison pills, Eldar discussed the results of a paper he co-authored titled “The Rise of Anti-Activist Poison Pills.”

A few pill measures that have emerged in recent years point to activist hedge fund accumulations, rather than unsolicited bidders, Eldar said.

“We looked at pills that had provisions that targeted activists, such as lower trigger thresholds, acting in concert provisions, synthetic equity provisions,” he said.

In addition, Eldar discovered that some so-called Net Operating Loss pills, set with low 5% thresholds, include provisions intended to thwart activists, even though the measures were likely set up to protect against tax losses.

“Some of these companies with NOL pills could be of great interest to activists especially if they are underperforming companies,” he said. “Companies can say they’re adopting 5% pills because they have NOL and they’re trying to protect it, but it could be driven by management concerns that they are going to be subject to an activist intervention.”

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