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Olivier Baum & Guhan Subramanian, Redemption Mechanisms in Poison Pills: Evidence on Pill Design and Law Firm Effects, Bus. Law. (forthcoming 2025).


Abstract: We present the first evidence on the incidence of “trip wire” versus “last look” poison pills. Using a hand-collected data set of 130 poison pills implemented and/or amended between January 1, 2020 and March 31, 2023, we find that pills are almost evenly divided between trip wire and last look pills. We find that the main—if not exclusive—driver of the variance in this pill design feature is the law firm that installs the pill. We further find that top tier M&A firms (defined as ranked Band 1, 2 or 3 in Corporate/M&A by Chambers) are far more likely to put in a trip wire feature. Firms outside of this top tier are far more likely to put in a last look feature. We argue that a trip wire feature is consistent with a well-known strand of the bargaining literature, demonstrating that irrevocable commitment provides bargaining leverage. The fact that top-tier law firms put in trip wire pills is an implicit acknowledgement of that literature. Sophisticated practitioners understand the importance of irrevocable commitments in other areas of transactional practice as well (e.g., “don’t ask, don’t waive” standstill agreements). We further demonstrate that a last look provision is not required under Delaware corporate law. Our finding that top-tier firms are more likely to adopt best practices is consistent with other literature showing a slow dissemination of cutting-edge features in transactional practice (e.g., Coates 2001; Subramanian 2005). We apply our findings to examine the poison pill that Twitter’s board of directors installed in April 2022, in response to Elon Musk’s offer to buy the company. Consistent with our overall findings, the Twitter pill, which included a last look feature, was not put in by a law firm ranked Band 1–3 in Corporate/M&A by Chambers. We argue that this last look feature might have been disastrous for Twitter, if Elon Musk had actually triggered the pill. At least with hindsight, Musk might have been able to acquire Twitter for billions less if he had triggered the Twitter pill.