What characterizes a Flip-in Poison Pill?

A Flip-in Poison Pill is a defensive strategy used by companies to deter hostile takeover attempts. The correct characterization of a Flip-in Poison Pill is that it allows existing shareholders to buy more shares at a discount. This mechanism enables current shareholders to increase their ownership percentage, making a takeover more expensive and less attractive for the acquirer.

When a hostile bid is made, existing shareholders are given the right to purchase additional shares, typically at a significant discount to the current market value. This increase in share ownership dilutes the equity held by the potential acquirer, making it harder for them to gain control over the company without incurring substantial costs. The primary goal of this strategy is to make hostile takeovers financially unattractive, thereby protecting the company's current management and board of directors from external parties who might seek to change the company's direction or leadership.

The other options mischaracterize the nature of the Flip-in Poison Pill. For instance, while the strategy may impact the stock's value indirectly, it does not directly diminish the company's stock value; rather, it aims to defend against a takeover by altering the dynamics of share ownership. Similarly, the options regarding purchasing the acquirer's shares or granting rights based on share ownership percentages during a merger do not accurately reflect the