GAIN Capital extends ‘poison pill’ shareholder rights plan by 3 years

Perhaps many of LeapRate’s devoted readers remember how FXCM Inc (NYSE:FXCM) made a “bear hug” offer to acquire GAIN Capital Holdings, Inc. (NYSE: GCAP) back in April 2013. GAIN responded by announcing a “poison pill” defense – a stockholder rights plan aiming to defend the company against hostile takeovers…

GAIN Capital made an announcement earlier today, with reference to the events from April 2013, as the rights plan was due to expire on April 9, 2016.

GAIN’s Board of Directors has approved an amendment and extension of its stockholder rights plan. Under the amended terms, the expiration date has been pushed to April 9, 2019. Also, under the amendment, the purchase price for the exercise of the rights has been raised from $17.00 to $27.50.

Gain Capital logo newHow does such a Shareholder Rights Plan work? Gain Capital’s Board (back in 2013) issues rights to all existing shareholders to purchase more GAIN Capital stock at a deep discount to the current share price. But those rights only become exercisable if an outsider acquires more than 15% of GAIN Capital’s shares. In case that happens, the plan automatically becomes effective— existing shareholders would then be able to exercise their rights to buy more GAIN Capital stock at a heavily discounted price. As only the existing shareholders (and not the hostile acquirer) have these rights, it makes it prohibitively expensive for the hostile acquirer to try and buy the company, without the consent of the board.

‘Poison Pills’ are quite controversial, because they take decision power away from the shareholders, giving all the power to make decisions to the Board of Directors — only the Board can revoke the rights. Such plans are rarely (if ever) triggered. Instead, they are usually used by Boards as a negotiating weapon to convince an acquirer to hike the bid for a company.

You can view the full announcement from GAIN by clicking here.

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