Comment by freefal

Update: This is wrong. Ignore it. The poison pill is not diluting any individual shareholder disproportionately. What it is doing is issuing the right to buy shares at a steep discount. For example, if shares of Company XYZ are currently trading at $50/share, the board would issue all the company's shareholders the right to buy stock at $25/share. Economically, everyone should exercise their rights since this is a good deal. The issue for the hostile bidder is that it can become quite expensive to actually fund the exercise price to maintain their ownership interest. The company now also has more cash and so purchasing all the remaining stock that the hostile bidder does not own will become more expensive/difficult.