Jack in the Box implements poison pill strategy

Biglari Capital increases its holdings in Jack in the Box to 9.9%, prompting the chain’s board to issue a poison pill in response to the activist investor’s intentions to acquire more restaurant brands like El Pollo Loco. Stock price drops from $60 to $20 as Jack in the Box implements a turnaround strategy.

Experts recommend having a poison pill ready in case of activist investor involvement or unsolicited offers. Historically, poison pills were used preventatively, but now they are more situation-specific. Boards have the discretion to terminate pills early, unlike in the past when pills could last up to 10 years.

Long-term poison pills require shareholder approval, which is challenging to obtain. Despite being viewed as anti-shareholder, poison pills do not prevent companies from considering offers in the best interest of shareholders. They give boards time to implement strategic plans and maximize shareholder value through operations or a sale.

Activist investors often criticize limited-duration poison pills, claiming they are anti-shareholder. Red Robin issued a poison pill in 2019 to fend off a hostile takeover attempt by Vintage Capital. Such actions are met with opposition from activists but aim to protect companies from unwanted acquisition. Vintage Capital expressed disappointment in Red Robin’s actions, stating a proxy fight would not benefit anyone. After negotiations, Red Robin agreed to appoint a new independent board director in 2020 and allow Vintage to acquire up to 20% of common stock.

Activists can challenge poison pills in court, but success is unlikely unless the trigger threshold is low. Delaware courts in the 1980s deemed poison pills legal, making challenges difficult. More restaurant boards may consider having a poison pill on standby after Jack in the Box’s example.

Expert Gottfried anticipates restaurant boards will consider implementing poison pills following recent events. While not all chains may announce adoption, the trend is likely to see more companies seeking legal counsel to have a poison pill ready for potential activist challenges.

Read more at Yahoo Finance: Why Jack in the Box’s poison pill was the right move