Poison pills, the corporate takeover defence strategy that came under assault earlier this decade from investor advocates, are grabbing headlines as two Canadian mining companies try to avoid unwanted deals.

But these pills do not carry the same bitter taste as their predecessors, keeping at bay the ire of investors who typically criticise them for helping entrench management and making it difficult for shareholders to get the best deal.

Officially known as shareholder rights plans, poison pills aim to enable management to thwart unwanted deals by issuing new shares and making it prohibitively expensive for hostile buyers to push deals through. The pills can also try to force bidders to make higher offers.

The number of poison pills is still declining in the United States in the aftermath of the corporate governance frenzy that spurred Sarbanes-Oxley legislation in ’02. But as activist investing, particularly by hedge funds, picks up and companies have tried to make the pills more investor friendly, the strategy seems likely to stick around in some format.

“There are a lot of hedge funds and private equity funds that are basically doing financial deals that companies may not want to take because they are looking for a strategic partner,” said Carl Sanchez, chair of the global mergers and acquisitions practice at Paul, Hastings, Janofsky & Walker, based in San Diego.

In Canada, where the pills typically last for only 3 years and are approved by shareholders, the strategy is actually becoming more popular, analysts said.

Mining companies Falconbridge and Inco, which are fighting unsolicited bids from Swiss Xstrata and Teck Cominco, for instance, have them in place.

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