Discussion
As a defensive maneuver, a firm issues deep-discount bonds that are redeemable at par in the event of an unfriendly takeover. These bonds are an example of:
Answer: D
Correct answer: A poison put
A poison put gives bondholders the right to demand redemption at par on a change of control. Because the bonds were issued at a deep discount, redemption at par means an immediate and substantial cash demand precisely when the acquirer is least able to meet it. The defence works by making the target expensive to buy rather than by preventing the purchase.
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