|
Stock rights give board of directors more power
then they are entitled to
Stock rights are options given to shareholders to
purchase additional shares, usually at a discounted price, and with a
ten-year expiration date. Normally the distribution is 15% or less of the
total shares outstanding and is granted only if certain predetermined
conditions are met.
Stockholder rights plans are usually designed by the
board of directors of a company to prevent hostile takeover attempts. They
make it more expensive for an acquirer to take over a company without the
target’s board of directors’ approval.
When the plan is first approved, the rights are
attached to the common stock. They are not exercisable, however, nor can
they be traded separately, unless certain conditions are met. These
conditions normally require an outside party to acquire about 15% of the
ownership of the company before the rights become activated. The board of
directors may also retain the right to cancel or change the plan at any
time, even after the conditions are met.
Stock rights are really a hindrance to the
shareholders, giving the board of directors of a company more power and
control over takeovers than they are entitled to. This makes it harder for
an acquiring company to solicit the stockholders directly, and to bypass the
board of directors.
There are
also companies that distribute stock rights to shareholders, which are
separately traded on the exchanges. Normally, stock rights are non-taxable
until the rights or the stocks are sold. Contact the company and the IRS for
specific tax instructions.
|
