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How a poison pill works

People shop in a mall on in New York City.  Spencer Platt/Getty Images News

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For months, the biggest mall operator in the U.S., Simon Property Group (SPG), has been trying to buy the third largest, Macerich.

SPG has tried everything: SPG asked the board of directors from Macerich nicely, it has thrown money at shareholders, and now it’s waging a nasty campaign in the press against the company’s directors.

It’s a classic example of a hostile takeover, and as SPG has gotten more and more hostile, Macerich has responded with some hostility of its own: a “poison pill.”

A poison pill is essentially a deterrent designed to make a buyout very unpleasant for the acquiring company. Poison pills come in all sorts of shapes and sizes and have a variety of effects.

Poison pills come in two basic forms: They can either make an acquisition very hard to swallow, or they can have awful side-effects.

The Macerich poison pill falls into the first camp. If SPG attempts to buy up a huge chunk of Macerich — specifically 10 percent or more of the company — current shareholders will be able to buy one preferred share for every share of Macerich that they already hold. This will dilute the value of SPG’s 10 percent stake, and also make it doubly expensive to buy Macerich.

Pretty hard to swallow, right?

There is one antidote to this poison, though, and that’s money — and SPG has buckets of money. The company may decide it wants Macerich so badly it is prepared to spend the money and swallow the poison — with Macerich right along with it.

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