Shareholder’s Rights Agreements And What They’re Used For

Courtesy of Benzinga.

Pier 1 Imports Inc (NYSE: PIR) announced earlier this week its board of directors approved a Shareholder Rights Protection Agreement.

This concept is fairly infrequent and uncommon. Simply put, a shareholders’ agreement details how current investors can make decisions regarding what outside parties become future shareholders.

The rights typically restrict any person or single from acquiring a position of 10 percent more of the company’s outstanding common stock.

The plan is usually put in place when the company feels it is under assault by an activist investor or a hostile takeover. If a person or group acquires more than 10 percent of a company, then shareholders will be able to buy shares at a discount which will dilute the total outstanding shares and make any takeover more difficult and expensive.

In Pier 1 Imports’ case, an activist investment firm, Alden Global Capital, bought a 9.5 percent stake in the retailer.

Related Link: Alden Issues Statement In Response To Pier 1 Imports’ Adoption Of A 10% Poison Pill

Here is how Pier 1 Imports described the agreement:

“In general terms, the Rights restrict any person or group from acquiring beneficial ownership of 10 percent or more of the Company’s outstanding common stock (including, for these purposes, certain derivative securities) after the date of this announcement. The Rights will not prevent a takeover of the Company, but may cause substantial dilution to anyone acquiring 10 percent or more of the Company’s common stock, which may block or render more difficult a merger, tender offer or other business combination involving the Company that is not supported by the Board of Directors.”

Pier 1 Imports Chairman Terry London commented on the agreement as well, saying, “The board feels it is important to ensure that all shareholders have the opportunity to realize the long-term value of the iconic Pier 1 Imports brand, and to guard against coercive or unfair tactics to gain control of the Company without paying all shareholders an appropriate premium.”

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