Like when you sleep wrong and cut off circulation to your hand, and when you finally wake up, you can’t feel it and you can’t move it, and just have to flop it around as dead weight until the blood comes back. Dead. Hand.
In financial terms, imagine a similar thing happening to the voting power of your stock. Suddenly it becomes virtually useless. That's a dead hand provision. Like, if something bad happens, your vote ain't worth much.
When would you use such a thing? Hostile takeovers. And there exist myriad techniques designed to defend against them. They are called poison pills. Yes, See: Poison Pill. The deadhand provision represents a specific type of poison pill.
We know. This all sounds very last season of Breaking Bad...like someone's carrying a vial of ricin in a cigarette pack.
But poison pills are ways to keep someone from launching a hostile takeover of your company. In the dead hand provision, when someone acquires a large chunk of stock angling for a takeover of the company you thought you controlled, the firm issues a bunch of new stock to other shareholders. Suddenly, the stock held by the potential takeover artists isn't as influential as it was before...it has been massively diluted. Now with a smaller total percentage ownership of the company, it's much more difficult for the hostile takeover to move forward, because there's so much more stock that needs to be purchased to buy a controlling stake. Dead hand provisions usually accompany the distribution of t-shirts that say, "Neener squared."
Related or Semi-related Video
Finance: What is a Pac Man Defense?21 Views
Finance a la shmoop what is a pacman defense?
[Pacman eating] yeah well wacka wacka to you too...Hostile takeovers are rare in real life not so
rare in pac-man but when they do happen there exists a whole cadre of strategies
behind defending them at least from the company's perspective being taken over
there and pac-man defense is inarguably the best named strategy of all of
them in essence what happens when we'll say an angry competitor let's call him
blinky Inc tries to buy an angrier competitor let's call them inky inc.
well blinky would be buying shares of inky in the open marketplace filing to [Blinky and inky appear]
go past 15% ownership and eventually own enough shares to elect its own Board of
Directors and make a takeover happen well in a Pac Man defense as blinky is
snarfing up shares of inky, inky buys shares of blinky sort of turning the
tables you know like this and while you're gobbling up that competition and [Pacman gobbling competition]
don't forget to eat a bunch of cherries or a strawberry every once in a while
because you know you still need your fruits and veggies
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