What is a 'Back-End Plan'

A back-end plan is an anti-acquisition strategy in which the target company provides existing shareholders, with the exception of the company attempting the takeover, with the ability to exchange existing securities for cash or other securities valued at a price determined by the company’s board of directors. A back-end plan, also known as a note purchase rights plan, is a type of poison pill defense. Poison pill defenses are used by companies to prevent a hostile takeover by an outside company.


Back-end plans were developed in the 1980s as a defense against two-tiered takeover bids, in which the acquiring company would pay a high price for shares until it held a majority of shares. The company would then use the voting rights connected with those shares to force the remaining shareholders to accept a lower price in order to complete the merger.

Companies fending off a takeover bid may utilize several different techniques designed to make the acquisition so costly and difficult that the acquiring company either gives up or is forced to negotiate with the company board rather than purchasing shares from existing shareholders. These anti-acquisition strategies are often referred to as poison pills, and include back-end plans.

A back-end plan is put into motion when a company attempting a takeover bid acquires more than a specific percentage of outstanding shares of a takeover target. It is a type of put plan, as shareholders have the right to exchange common stock for cash, debt securities or preferred stock, with preferred stock being the most typical security issued in connection with a back-end plan. If an outside company acquires a large block of shares – such as 20% — shareholders who hold the preferred stock would be able to acquire super voting rights.

Setting a Back-End Price

The back-end price is usually set above the market price, but must be set at a price that is considered to have been made in good faith. By providing shareholders with the right to obtain shares with a higher value if the acquiring company reached a majority stake, the acquiring company would not be able to force a lower share price to complete the acquisition. If the acquiring company offers a price greater than the price specified in the back-end plan, the poison pill will fail.

  1. Poison Pill

    A poison pill is a method used by public companies to derail ...
  2. Voting Poison Pill Plan

    An anti-takeover strategy in which the company being targeted ...
  3. Flip-Over Poison Pill

    A flip-over poison pill is a defensive strategy used to fight ...
  4. Back-End Load

    Back-end load refers to the money a mutual fund charges to a ...
  5. Takeover

    A takeover occurs when an acquiring company makes a bid in an ...
  6. Killer Bees

    Killer bees helped companies avoid takeovers, during the 198 ...
Related Articles
  1. Small Business

    Corporate Takeover Defense: A Shareholder's Perspective

    Find out the strategies corporations use to protect themselves from unwanted acquisitions.
  2. Insights

    Charles Schwab's Intelligent Portfolio Is Top Robo-Advisor in Q3: Backend Benchmarking

    Charles Schwab's Intelligent Portfolio was the best performing robo-advisor in the third quarter, according to Backend Benchmarking.
  3. Investing

    Trademarks of a Takeover Target

    These tips on finding viable takeover targets can lead you to little companies with big prospects.
  4. Investing

    Why Do Companies Care About Their Stock Prices?

    A company's stock price reflects the company's earnings potential, its future viability, determines management compensation can play a critical role in mergers and acquisitions.
  5. Investing

    Know your shareholder rights

    Common-stock owners have numerous privileges and should be vigilant in monitoring a company. Read on to learn what rights you have as a shareholder.
  6. Retirement

    7 Reasons to Yank a Mutual Fund from Your 401(k)

    Not all mutual funds are created equal. Here are some practical tips for recognizing – and ditching– low-value mutual funds that might be in your 401(k).
  7. Investing

    What Investors Can Learn From M&A Payment Methods

    How a company pays in a merger or acquisition can reveal a lot about the buyer and seller.
  8. Small Business

    How To Profit From Mergers And Acquisitions Through Arbitrage

    Making a windfall from a stock that attracts a takeover bid is an alluring proposition. But be warned – benefiting from m&a is easier said than done.
  9. Investing

    J.C. Penney Extends Plan to Prevent Takeovers

    Almost going out of business has some surprise positives. A near-death experience and the losses associated with that period left retailer J.C. Penney (NYSE: JCP) with $2.6 billion in potential ...
  10. Investing

    Selling Mutual Funds: What Happens When You Liquidate?

    Learn about the hidden costs that can be triggered when you redeem mutual fund shares. Even no-load funds have fees and expenses you may not know about.
  1. What is the difference between a "flip-in" and "flip-over" poison pill?

    Learn about strategies used to defend against hostile takeovers, what a poison pill is and the difference between a flip-in ... Read Answer >>
  2. How can a company buy back shares to fend off a hostile takeover?

    Learn about why a business might use a stock buyback to thwart a hostile takeover attempt by reducing its total assets and ... Read Answer >>
  3. What happens to the shares of a company that has been the object of a hostile takeover?

    Learn about the effect on the share price of companies that are targets of hostile takeovers, which are tactics used by famed ... Read Answer >>
  4. What is a staggered board?

    A staggered board of directors (also known as a classified board) is a board that is made up of different classes of directors. ... Read Answer >>
Trading Center